Maryland imposes sales and use tax on the sale of software and digital products

Maryland will begin imposing sales tax on the sale of digital products, starting March 14, 2021.  This is an abrupt change in tax policy for a state that has historically steered away from imposing sales tax on electronically delivered and remotely accessible software, digital products, and cloud-based data and information services.  These changes may be found primarily in Maryland Tax Code Sections 11-101(h) and 11-101(n).

The Comptroller’s office has published guidance on HB 932 21^st Century Fairness Act which imposes sales and use tax on the sale of digital products.  The guidance can be found here:

According to the Comptroller's Business Tip 29, the following is a non-exclusive list of digital products the sale of which is subject to the sales and use tax if obtained or delivered by electronic means:

• A book or e-book
• Newspaper
• 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 audio books or other written materials
• Prerecorded or live speeches including commentaries, dissertations, and lectures

Effective March 14, 2021, Maryland sales tax is imposed on most prewrittend software subscriptions or licenses, regardless of how delivered or accessed, as well as streaming services and electronically delivered goods and services. 

The sale of digital codes that enable the customer to access such digital products is also taxable.  The printing, fabrication, processing or production of tangible or digital products is also taxable. 

These sweeping changes, impact all providers and consumers of software, electronic information, data processing, gaming and audio-visual services, advertising agencies and education providers.

Please reach out to your sales tax professional for further guidance on how to meet your Maryland tax obligations relative to these changes.