MD Sales Tax on Digital Goods: Update

The Maryland General Assembly passed Senate Bill 787 on April 12^th, 2021 and sent it to Governor Hogan to review. The Governor did not sign or veto the bill, so it became effective on June 1^st, 2021 – retroactive to the original date of March 14, 2021.  The purpose of this new bill was to clarify some of the confusion set forth by House Bill 732 and House Bill 932 that were passed earlier this year. Subsequently the Maryland Comptroller’s Office re-issued Maryland Business Tax Tip #29 that also helps to clarify some of the ambiguity of the new sales tax law. The following items have been addressed in the Tax Tip:

• Pre-recorded or live instruction by public or private education institutions are exempt.
• Instruction in a skill or profession, if live and interactive are exempt.
• Professional services obtained electronically involving the sale of a digital product as an inconsequently element are exempt.
• Advertising agencies can now separately state brand marketing/concept design services from final digital product and tax only the digital portion of the invoice.
• Custom Software is exempt if it does not operate immediately as intended “out of the box”.  This includes enterprise software as listed in the tax tip.

The Comptroller's Office has issued guidance in the form of a Maryland Tax Tip that can be found here.

For more information on this new tax law or to understand how it impacts your organization, contact Clearview’s Director of State & Local Tax, Mike Ginski.