The Maryland Comptroller has issued guidance on the expansion of the state’s sales and use tax to a digital product or code, specifying which items are considered taxable digital products if delivered electronically, explaining exclusions and exemptions from tax, and applying economic nexus and marketplace facilitator rules to digital products. The tax must be collected beginning March 14, 2021. The Comptroller has provided an extension to July 15, 2021 to file and pay tax, and relief from interest and penalties if the tax is paid by that date. The requirement to collect the tax from customers has not been delayed. Business Tax Tip #29, Sales of Digital Products and Digital Code, Maryland Comptroller (March 2021); Tax Alert: Extension of Time to File and Waiver of Interest and Penalty for Certain Filers, Maryland Comptroller (3/11/21)
Action item: Under the Comptroller’s expansive list of items included as digital goods, many additional service providers—including those offering online video game services, software as a service (SaaS), and online courses, among other services—could be required to collect and remit tax.
Businesses now face a new compliance obligation to apply, properly source, and remit sales and use tax to Maryland. Many taxpayers will not have had time to set up their systems to collect tax prior to the March 14 effective date given the late notice of the state’s interpretations. Therefore, sellers may need to absorb the tax until their systems can properly invoice the tax. Further, purchasers will need to accrue the tax and reconcile transactions with vendors to avoid double payment of tax.
Taxpayers that are not already registered in Maryland should initially register to collect tax; however, given this short timeline, many taxpayers will not have been able to register by the March 14 effective date.
The Comptroller’s three-month extension to file and pay tax, and the abatement of penalties and interest, provide a brief period of relief. However, taxpayers are still required to collect tax.