Tax Guidance in Maryland: New Tax on Digital Products Now Includes SaaS

Maryland taxes on an office table.

By Jeff Glickman, SALT Partner at Aprio

At a glance:

  • The Main Takeaway: As of March 14, House Bill 932 became law, and it expanded the sales tax base to apply to the sale of a “digital product.”
  • Impact on Your Business: The impact of this legislation is significant for businesses in the technology space, including software-as-a-service (SaaS) providers and others that sell digital products.
  • Next Steps: Be proactive and review the changes made through House Bill 932 to better understand how your business and customers will be affected.

Unsure if House Bill 932 effects your business? Schedule a meeting with Aprio’s State and Local Tax (SALT) team for assistance

The full story:

On February 8 and February 12, 2021, the Maryland House and Senate, respectively, voted to override Governor Hogan’s veto (back on May 7, 2020) of 2020 House Bill 932 — the “21st-Century Economy Fairness Act” — which originally passed the Maryland legislature in March 2020.[1]  As a result of the override and pursuant to the Maryland Constitution, the law became effective 30 days after the override on March 14, 2021.

Here are some important details you should know about this guidance.

What is a taxable digital product?

Under the legislation, Maryland sales tax now applies to the sale of a “digital product,” which is broadly defined to mean “a product that is obtained electronically by the buyer or delivered by means other than tangible storage media through the use of technology having electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities.” The bill identifies certain items that are included as a digital product, such as:

  • A work that results from the fixation of a series of sounds that are transferred electronically;
  • A digitized sound file, such as a ring tone, that is downloaded onto a device and may be used to alert the user of the device with respect to a communication;
  • A series of related images that, when shown in succession, impart an impression of motion, together with any accompanying sounds that are transferred electronically, including motion pictures, musical videos, news and entertainment programs, live events, video greeting cards sent by email and video or electronic games;
  • A book that is transferred electronically (i.e., an e-book); and
  • A newspaper, magazine, periodical, chat room discussion, web-blog or any other similar product that is transferred electronically.

A few days before the bill’s effective date, the Maryland Comptroller issued guidance entitled, “Business Tax Tip #29 Sales of Digital Products and Digital Codes.” In that guidance, the Comptroller identified a nonexclusive list of digital products if obtained or delivered by electronic means, in addition to the items mentioned above, as specifically identified in the legislation. These include:

  • A sale, subscription or license to access content online;
  • A sale, subscription or license to use a noncustomized software application (i.e., “software-as-a-service,” or “SaaS”); and
  • An online class, instruction or similar product.

On April 12, 2021, the Maryland legislature passed Senate Bill 787, and it will become law upon the governor’s signature or 30 days after it was transmitted to him. That legislation partially overrides the Comptroller’s interpretation of digital products regarding online classes. That bill specifically excludes from the definition of a digital product:

  • Prerecorded or live instruction by a public, private or parochial elementary or secondary school, or a public or private institution of higher education;
  • Instruction in a skill or profession in a buyer’s current or prospective business, occupation or trade if the instruction (i) is not prerecorded and (ii) features an interactive element between the buyer and the instructor or other buyers contemporaneous with the instruction; and
  • A seminar, discussion or similar event hosted by a nonprofit organization or business association, if the seminar, discussion or event (i) is not prerecorded and (ii) features an interactive element between the buyer and host or other buyers contemporaneous with the seminar, discussion or event.

What about economic nexus and filing responsibility?

The Comptroller’s guidance makes clear that its economic nexus regulation also applies to an out-of-state seller without a physical presence in Maryland if, during the previous or current calendar year:

  • The person’s gross revenue from the sale of digital products or digital code delivered in Maryland exceeds $100,000.00, or
  • The person sold digital products or code for delivery into Maryland in 200 or more separate transactions.

In addition, on March 11, 2021, the Comptroller issued a Tax Alert recognizing that due to House Bill 932, the state’s sales and use tax forms will be revised. Therefore, the due date for sales tax returns related to March, April and May 2021 sales is extended to July 15, 2021. In addition, interest and penalties will be waived if sales tax for such sales is paid by July 15. Please note that this does not extend the effective date for collecting applicable sales tax from customers, which is March 14, 2021.

The bottom line

The legislation and Comptroller’s guidance significantly expand Maryland’s sales tax base, and there are many additional changes not addressed in this article, including sourcing rules for digital products.  Businesses should review all these changes with their tax advisors to determine if sales tax needs to be collected from customers.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the April 2021 SALT Newsletter.

[1] Governor Hogan’s Veto Letter explained that he did not want to raise taxes on Marylanders during the COVID-19 pandemic while many residents were out of work and struggling financially.


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