Maryland Delays Digital Advertising Services Tax; Revises Guidance For Sales Tax Of Digital Products

June 2021

BY

Kent DeBruinManager, State and Local Tax

Maryland Senate Bill (S.B.) 787 became law 30 days after being presented to the governor, who allowed the bill to pass without his signature. S.B. 787 delays Maryland’s digital advertising services tax until 2022; contains technical corrections to the tax; and modifies sales and use tax provisions relating to digital products, digital codes and custom software.
 

Digital Advertising Services Tax

The most significant change to the digital advertising services tax under S.B. 787 was to delay the implementation of the tax to January 1, 2022. The new legislation also exempts “broadcast entities” and “news media entities” from the tax by excluding advertising services on digital interfaces owned or operated by, or operated on behalf of, a broadcast entity or news media entity from the definition of digital advertising services. Additionally, the law prohibits persons who are subject to the tax from directly passing on the cost to the customer by means of a separate fee, surcharge or line-item.

The Comptroller of Maryland does not expect to issue additional guidance for the digital advertising services tax until at least July 2021.
 

Digital Products and Digital Codes

The new legislation excludes certain prerecorded and live instruction, seminars, discussions or similar events from the definition of a “digital product.” Professional services that are delivered electronically are also excluded from the definition of “digital product.” In addition, gift cards and gift certificates with monetary value are not taxable digital codes when the gifts are redeemable for an item other than a digital product.
 
The changes to the taxation of digital products included in S.B. 787 apply retrospectively to March 14, 2021. The Comptroller of Maryland issued its interpretation of the new legislation as revisions to Business Tax Tip #29, “Sales of Digital Products and Digital Goods” on June 3, 2021. 
 

Custom Software

 S.B. 787 also expands the exemption of custom computer software from sales and use tax to software or services relating to custom software that is “configured” or “modified” for use, regardless of the method of delivery. This would include software-as-a-service in the exemption. The revised Business Tax Tip #29 contains an explanatory list of the kinds of software that would normally be considered as “configured” or “modified” for use, as well as examples of when software-as-a-service is and is not exempt as custom software.