Maryland (US) expands the application of Sales and Use Tax to Digital Products

According to the publication by the State of Maryland (US) “Business Tax Tip #29”, the sale or use of Digital Products and Digital Codes is subject to Sales and Use Tax (SUT). The measure is in effect since 14 March 2021 while the applicable Tax rate on digital products is 6%.

The prompt notification that extends the application of Sales and Use Tax to Digital Products would required businesses to apply, collect and remit sales and use tax to Maryland. All taxpayers will need to quickly adapt and update their system to comply with the new regulations. In addition, businesses will have to assess any registration requirements in Maryland as well.

Given the short notice, the State of Maryland has also extended the due date of sales and use tax returns for sales taking place in March, April, and May of 2021 to July 15, 2021.

What do Digital Products and Digital Codes mean?

Digital Products are obtained electronically by the buyer or delivered by nontangible means, such as electrical, digital, or magnetic.

Examples of digital products are eBooks, download of stream o movies, videos or sports events, subscription to online content or software.

Digital Codes are codes that provide buyers with the right to obtain digital products. 

What is the role of Marketplace Facilitators under this measure?

In general, Marketplace facilitators are required to collect the applicable Sales and Use Tax due on a retail sale or sale for use of a tangible property by a marketplace seller to a buyer in Maryland.

Under the new measure, Marketplace facilitators will be required to collect SUT when facilitating sales of digital goods and tangible property in the marketplace.

If the marketplace facilitator is involved only in the listing or advertisement of digital goods, they may voluntarily collect sales tax on sales of digital products on behalf of the marketplace seller.

Economic Nexus

Out-of-State vendors shall collect and remit sales and use tax on all taxable sales of digital products for use in Maryland when they meet one of the following criteria:

• Gross revenue from the sale of digital products or digital code delivered in the State exceeds $100,000.00; or 
• The person sold digital products or codes for delivery into the State in 200 or more separate transactions. 

If the business has exceeded one of these thresholds, they would need to register for Sales and Use Tax.

Whether your business is trading tangible goods or digital products, Global VAT Compliance can help you register for Sales and Use Tax in the USA. Contact us for more information.