Maryland Taxes Digital Products and SaaS, Effective March 14, 2021

March 2021

Maryland was the first state to implement an annual gross revenues tax on digital advertising services.  At the same time, Maryland also expanded its sales tax base to include “digital products” and software-as-a-service (SaaS).

Effective March 14, 2021, Maryland now imposes sales and use tax on digital products. The new law defines a digital product as “a product that is obtained electronically by the buyer or delivered by means other than tangible storage media through the use of technology having electronic, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.”  The law also adds SaaS, subscriptions, streaming services and “digital codes” as taxable transactions.

The Comptroller of Maryland issued its interpretation of the new law under Business Tax Tip #29, Sales of Digital Products and Digital Code.  According to the guidance, the entire charge for a bundled transaction that involves the sale of a digital product and a non-taxable service or non-taxable tangible personal property is subject to the sales and use tax. However, tax does not apply to non-taxable personal, professional or insurance services that involve a digital product as an inconsequential element.

The guidance also describes what types of transactions the Comptroller’s office considers to be taxable digital products.  Notably, the guidance specifies that online education courses, streaming services, “canned” software delivered electronically and SaaS are all taxable as digital products.