Are you setting your entrepreneurial sights on the maritime gateway of the East Coast? To flourish in Maryland, a state known for its pivotal role in American history and its robust economy, it’s crucial to master the state of Maryland’s sales tax intricacies.
This guide breaks down everything you need to know about Maryland’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Maryland’s sales tax with confidence and ease.
Sales Tax Nexus in Maryland
When a business creates either a physical or economic nexus, it is required to collect sales tax in Maryland.
Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Maryland include:
- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Uses personal vehicles to sell or deliver taxable goods or services in the State on a regular basis.
- Regularly enters the state to provide service or maintenance for tangible personal property.
- Presence at Trade Shows: If you plan to sell items at a single event or craft show in Maryland, you might not have to register with the state. But, you will need to get a Temporary Sales & Use Tax License.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as
economic nexus.
Beginning October 1, 2018, the threshold for economic nexus in Maryland is
$100,000 in gross revenue or
200 transactions in the previous or current calendar year’s sales.
While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the
governing laws for sales tax nexus requirements in Maryland.
Maryland Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Maryland.
Tangible Products
Almost all goods are taxable in Maryland, including:
- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Home Goods
- Groceries – Frozen yogurts and desserts, ice cream in less than one-pint containers, cold sandwiches, and party platters are not exempted from sales tax. However, sales of food to patients in a hospital, on vehicles operating in interstate commerce, etc., may be exempt.
The goods that are exempt from sales tax are:
- Feminine Hygiene Products – Products such as sanitary pads, tampons, menstrual sponges, menstrual cups, or other similar feminine hygiene products are exempt from sales tax.
- Baby Products – Products such as baby bottles, baby bottle nipples, diapers, diaper rash cream, baby wipes, and infant car seats are exempt from sales tax
- Oral Hygiene Products
- Agricultural and Farming Supplies and Equipment – Items bought or sold by a farmer for agricultural purposes are not subject to sales tax.
- Prescription Medicines & Eyewear (i.e. corrective contact lenses & eyeglasses)
- Medical Devices
Services
In Maryland, the majority of service-based transactions, such as professional services and advertising, are not subject to sales tax.
However, there are specific situations where certain services are taxable. For instance:
- Manufacturing or producing personal property
- Transportation of electricity or natural gas
- Certain telecommunications services
- Credit reporting services
- Security services
- Commercial cleaning and janitorial services
Software-As-A-Service (SaaS)/Digital Products
SaaS is taxable in the state of Maryland.
Digital products (i.e., ebooks, downloadable video content, mobile apps) are also taxable.
Shipping/Handling
Shipping charges in the state of Maryland are
not taxable on their own, but handling charges are. When shipping and handling charges are combined on a bill, the entire amount becomes taxable.
Sales Tax Permits and Licenses in Maryland
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Maryland, the next important step is getting your Maryland Seller’s Permit, also known as a sales tax permit.
Seller’s Permit
You can register for a Maryland sales tax permit online at the Maryland Tax Connect.
Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:
- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale, or the expected date to start dates)
Registration fee
There is no fee to register for a sales tax permit.
Renewal
In Maryland, you don’t have to renew your sales tax permit.
Resale Certificate
A
resale certificate is a document that allows businesses to buy products without paying sales tax on them as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale.
In Maryland, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items.
You can fill out the
Online Verification of Maryland Tax Account Numbers provided by the Comptroller of Maryland after you receive your sales tax permit. In most cases, this form needs either a sales and use tax registration number or an exemption number to be valid. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.
Streamlined Sales Tax (SST)
The
Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. However, Maryland is
not a party to this program, meaning it does not follow the uniform rules and definitions established by SST but has its own sales tax regulations.
Check with the Comptroller of Maryland for the most current information on Maryland’s participation in the Streamlined Sales Tax initiative.
Calculating and Collecting Sales Tax in Maryland
Sales Tax Computation
In Maryland, the sales tax is made up of only the statewide sales tax. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s Maryland Sales Tax Calculator to compute for sales tax.
Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Florida and sells to a customer in Baltimore, MD, with a ZIP code of 21201. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
 |
SALES TAX FORMULA |
RATE |
| State: |
Maryland |
6.00% |
| County: |
Baltimore |
N/A |
| District: |
Second District |
N/A |
| City: |
Baltimore |
N/A |
| Combined Sales Tax Rate = |
6.00% |
|
Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an
origin-based or destination-based state to figure out what rate to charge for sales tax.
Maryland is a
destination-based state, meaning sales tax is determined based on the buyer’s location. That means for a Maryland-based seller, sales tax is generally based on the location of the buyer when selling within the state.
For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Florida to a customer in Baltimore, Maryland, where you have nexus, you’d apply Baltimore’s sales tax rate to that sale.
To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.
Filing and Remitting Sales Tax Returns in Maryland
The next step after collection is filing and remitting your Maryland sales tax returns. Filing and remittance can vary in frequency, typically monthly or quarterly.
The frequency of your filings is determined by your sales and use tax liability and occurs in one of the following ways:
- Monthly filing: Annual sales tax liability of $15,000 or more is required to file monthly;
- Quarterly filing: Annual sales tax liability of less than $15,000 is required to file quarterly.
It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Maryland’s sales tax regulations.
Due Dates
In Maryland, the due date falls on the
20th day of the following month
. For instance, sales tax collected in January is due by February 20th for monthly filers.
However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 20th deadline falls on a holiday or weekend, you’ll have until May 21st, the following business day, to submit.
Filing Sales Tax Returns
To file your sales tax return for Maryland, a few options are available:
- File online through the Comptroller of Maryland portal.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly.
Maryland’s timely filing discount is in the form of a deduction, with the amount determined using specific formulas based on the sales tax due. The maximum discounts available range from 1.2% of the first $6,000 sales tax collected to 0.9% for the sales tax amount collected above $6,000.
Sales Tax Holiday
Currently, for 2024, the planned sales tax holidays in Maryland are:
| DATE |
TYPE |
ELIGIBLE MERCHANDISE |
| February 17 – 19, 2024 |
Annual Energy Star Tax Holiday |
Various Energy Star appliances, including:
- Standard size refrigerators
- Air conditioners
- Boilers
- Heat pumps
- Washers and dryers
- Dehumidifiers
|
| August 11 – 17, 2024 |
Back-to-School |
- Clothing and footwear ($100/item or less)
- Backpacks (only the first $40)
|
|
Maryland Sales Tax Penalties
Like in most states, sales tax is a big part of how Maryland generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state.
Here are the specific penalties for non-compliance with sales tax regulations in Maryland:
- Civil penalties amounting to 10% of the total sales tax due;
- On the criminal side, offenses can be classified as misdemeanors, depending on the severity and specific circumstances.
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