Maryland sales and use tax now applies to digital products


Enacted Maryland House Bill 932 has expanded the application of sales and use tax to digital codes and products, effective March 14, 2021. Taxability now includes certain digital codes and products when the “customer tax address” is located within the state. The application includes out-of-state vendors selling to in-state customers under certain circumstances. Some exemptions to this expanded taxability are available.

What does this mean?

Sales and use taxability under the House Bill is expanded to include the sale of digital codes and products to a “customer tax address” within the state. The application covers various digital products including education, entertainment, and information sources, photography and video, and software. It applies to out-of-state vendors selling to customers within the state of Maryland, and will create nexus only if annual gross revenue from the sale of digital product exceeds $100,000 or if there are 200 or more separate transactions that involve digital products within the state.

“Digital code” is defined as a code that “may be obtained by any means,” including in tangible form (such as a card) or through email, and that “provides the buyer with a right to obtain one or more digital products.” This definition does not include gift certificates or gift cards with monetary value that the buyer may be able to redeem for an item other than a specified digital product.

“Digital product” is defined 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 electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” This definition includes (but is not limited to): 

  • Prerecorded or live music, performances, audiobooks, or speeches delivered digitally 
  • Newspapers, magazines or other publications, including books/e-books
  • Digital downloads or streams of motion pictures, music, or live events
  • Digitized sounds used to alert users of communications (such as ringtones)
  • Subscriptions or licenses to access content online or use a software application 
  • Access to or use of video or online games
  • Online classes or instructions 
  • Access to chat rooms, discussions, or weblogs 

Items excluded from sales tax under the House Bill include customized software; resale of a digital product; sales made to the federal government, the State of Maryland, or a political subdivision of the State; property intended for use in another state; and products sold for use or consumption in research and development.

The “customer tax address” includes the following, which should be applied in such order:

1. The business location of the vendor when the digital product is received by the buyer at such location;

2. The location of the primary use of the product;

3. “The location where the digital product is received by the buyer, or by a donee of the buyer that is identified by the buyer, if known to the vendor and maintained in the ordinary course of the vendor’s business”;

4. “The location indicated by an address for the buyer that is available from the business records of the vendor that are maintained in the ordinary course of business of the vendor’s business”;

5. “The location indicated by an address for the buyer obtained during the consummation of the sale, including the address of the buyer’s payment instrument”; or

6. If none of the above are present, then the location in the U.S. of the vendor’s headquarters; the U.S. location where the vendor has the greatest number of employees; or the U.S. location from where the vendor makes the digital products available for electronic transfer.

What does CohnReznick think?

Sellers of software or any digital goods and products to customers located in Maryland should reassess whether future sales of such products would fall under the definition of taxable digital code or digital products that would warrant a state sales tax collection and remittance obligation.  

Buyers/subscribers of such taxable software and digital codes and products located in Maryland should review future invoices on such purchases.  In the event no Maryland sales tax was charged by the vendor, that buyer may potentially have a state use tax obligation on such purchases meeting the definition of taxable digital code or digital products.


John Iannotti, CPA, Partner, State and Local Tax


Marissa McClain, State & Local Tax Senior


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