Overview
Maryland Sales and Use Taxes: Taxation of Digital Products in Maryland
L. 2022, S723 (c. 535), effective July 1, 2022, amends the definition of “digital product” for purposes of application of the sales and use tax.
Exclusions from the Definition of “Digital Product”
“Digital product” does not include:
- Products with Certain Capabilities for Commercial Use
- A product having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities,
- Where the purchaser holds a copyright or other intellectual property interest in the product, in whole or in part,
- If the purchaser uses the product solely for commercial purposes, including advertising or other marketing activities.
- Enterprise Computer Software and SaaS
- Computer software or Software as a Service (SaaS) purchased or licensed solely for commercial purposes in an enterprise computer system.
- This includes operating programs or application software for the exclusive use of the enterprise software system.
- Such software may be housed or maintained by the purchaser or on a cloud server, whether hosted by:
- The purchaser,
- The software vendor, or
- A third party.
Summary
This legislation clarifies that Maryland’s sales and use tax on digital products excludes:
- Certain commercial-use products where the buyer has IP rights.
- Enterprise software or SaaS used strictly for business operations.
Frequently Asked Questions
What is considered a “digital product” under Maryland sales tax law?
A digital product, under Maryland law, includes items delivered electronically such as digital books, music, videos, and software. However, the definition excludes certain products used solely for commercial purposes or those involving intellectual property rights held by the purchaser.
Are enterprise software and SaaS taxable in Maryland?
No, enterprise computer software and Software as a Service (SaaS) are not subject to Maryland sales and use tax if they are purchased or licensed strictly for commercial use within an enterprise computer system.
What types of digital products are excluded from taxation?
Digital products are excluded if they are:
- Used solely for commercial purposes,
- Involve intellectual property rights held by the buyer, or
- Are part of enterprise computer systems, including cloud-hosted or self-hosted SaaS solutions.
Does ownership of copyright affect digital product taxation?
Yes, if a purchaser holds a copyright or intellectual property interest in a digital product and uses it exclusively for commercial purposes, it is not subject to Maryland sales and use tax.
When did the new digital product tax rules take effect in Maryland?
The changes to the definition and taxation of digital products under Maryland’s sales and use tax law took effect on July 1, 2022, as per legislation L. 2022, S723 (c. 535).