The Maryland Legislature overrode the Governor’s veto of House Bill 932 on February 12, 2021. The override will allow for sales tax to be imposed on digital products and streaming services. Under Maryland law, the legislation takes effect 30 days after the override, so this new sales tax will be effective March 14, 2021. The Maryland Comptroller’s Office issued guidance, Business Tax Tip #29, Sales of Digital Products and Digital Code on March 9, 2021.
As expected, the guidance includes taxation of digital downloads of movies, music videos, books and games. However, to the surprise of many, the guidance also includes sales tax on electronically downloaded software and software as a service (SaaS). Neither were specifically mentioned in the legislation, and most states that currently tax digital products do not include software in their definition of digital products.
Another item of note is that charges for electronically delivered education services, including lectures, courses, continuing education classes, seminars and conferences, will be subject to Maryland sales tax. This would include electronically downloaded continuing education classes by a non-profit or tax-exempt organization as well as charges for viewing a course or lecture online by a college or graduate school.
The following is a non-exclusive list of digital products, the sale of which are subject to the sales and use tax if obtained or delivered by electronic means:
- A book or e-book
- Magazines, periodicals, or any other publication
- A digital download or stream of a motion picture, music video, news and entertainment program, live event, sporting event, tutorial, etc.
- A digitized sound file that may be downloaded onto a device and may be used to alert the user to a communication or information
- A sale, subscription or license to access content online
- A sale, subscription or license to use a software application
- Access to a chat room, discussion, weblog, or any other venue that permits users to communicate electronically in real time
- An online class, instruction, or similar product
- Access to or use of video or online games
- Access to or use of virtual items, such as skins, renders and in-app purchases, purchased for use in a video or online game
- Audio or video greeting cards sent by email, text or any other electronic means
- Customer lists, mailing lists, medical records, and similar products
- Design files, models, and templates, such as 3D design files, 3D models, CNC templates, and virtual/alternate reality templates
- Photographs, artwork, illustrations, graphics and similar products
- Prerecorded or live music
- Prerecorded or live performances
- Prerecorded or live audiobooks or other written materials
- Prerecorded or live speeches including commentaries, dissertations, and lectures
As the Comptroller’s guidance has expanded the definition of digital products to include software, SaaS, access to online content and education services, providers of such services that are currently registered in Maryland could be required to collect and remit sales tax on these additional services beginning with invoices dated March 14, 2021. Taxpayers that are not currently registered in MD should examine their economic nexus thresholds and determine if they should register for MD sales tax.