Maryland is one of the first states to develop its own tax system and incorporate current trends into it. While other states confuse companies and can’t figure out how much money they have to pay into the treasury, Marylanders can already start a business in a new area and save on taxes.
Maryland is leading the way in taxing digital products, though it’s having its own challenges. In 2021, the state passed HB 732 , imposing a new tax on digital advertising services; and HB 932 , which expanded the sales and use tax on certain digital products. Its digital advertising services tax is the first of its kind in the country, but it faces various challenges.
Maryland’s digital product tax legislation includes examples of what constitutes digital codes and digital goods, as well as the following rather broad definition of a digital product: technologies that have electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities.” This definition seems broad enough to encompass almost anything marketed by intangible means and is a trend among states: list what you can and include definitions broad enough to encompass new or emerging technologies.
To provide additional guidance, Maryland has issued Tax Board No. 29 – Sales of Digital Products and Digital Codes . Its details include examples of what constitutes a digital product: static, non-individualized information reports, electronic chat rooms, weblogs and similar products, stock photos and illustrations. Interestingly, Maryland includes software as a service, or SaaS, in the definition of digital products, while many states define digital products separately from SaaS. Maryland then provides several exceptions related to SaaS, including one for customized software.When Maryland’s guidance regarding the individual SaaS exception first came out, there was some confusion about how broad the exception was, particularly how much customization was required to apply the exception. Any software other than plug-and-play software was considered customized and potentially subject to the customized software exception. Companies can use marketing for SaaS products. In addition, in part because of this confusion, Maryland has changed the definition of what constitutes taxable SaaS and enterprise software by expanding the exception for commercial software.