The State of Maryland has a sales tax system similar to many other states in the union, with few significant differences from standard practice or rates in other states. While it’s important to establish whether your business has nexus in the state and determine if the goods and services you sell are taxable, the system in Maryland is relatively straightforward.
The State of Maryland has a flat sales tax for the entire state of 6%. This applies to all cities and counties as no local municipalities have separate sales tax rates that increase this total. Because of the size and location of the state, it’s important to keep in mind that local rates in surrounding states and District of Columbia may affect your business depending on where you do business, but for transactions that originate or take place in Maryland, the rate is a flat 6%.
The first step in determining if you need to collect sales tax in the State of Maryland is to check if you have sales tax nexus in the state. Nexus refers to physical presence in the state and applies to those who have a significant presence that would require them to collect sales tax on certain transactions.
The situations in which a business would be responsible for collecting sales tax because of nexus include:
The State of Maryland maintains a comprehensive list of what they consider to be sales tax nexus in the state on the Maryland Department of Revenue website here.
For those that utilize the Amazon FBA program, there is only one warehouse located in Maryland in Baltimore. If your inventory is stored in this location, you may be required to collect sales tax on transactions made with those goods. You should establish in advance where your goods are being stored by Amazon as part of the FBA program.
In the State of Maryland, the list of goods that are eligible for sales tax is consistent with those of most other surrounding states. There are a number of exceptions, especially for service-based businesses to sales tax requirements, however. Here are factors to keep in mind when determining what your sales tax burden might be:
Because these factors can change over time and because each situation is unique, be sure to check the Department of Revenue website or speak with a Maryland representative regarding any sales tax exemptions.
To collect and pay taxes in Maryland you must register with the state and obtain a sales tax permit. The Department of Revenue provides both an online and paper version of the application on their website. If you are applying for exemption, you must use the paper version of this application:
Because Maryland uses a combined registration, you’ll need everything you would normally need to apply for a business license in another state. You’ll need a physical address Federal Employer Identification Number (FEIN), and a detailed account of your business activities in the state. The online version of this application will guide you in which sections you must fill out, streamlining the process.
You will pay Maryland sales and use tax by:
Your sales tax filing frequency is based on your total tax liability and is assigned when you apply for your permit. This can change in the future if your liability changes.
Like many states, Maryland offers a discount to those who pay their sales tax on time – the discount is 1.2% of the first $6,000 collected and 0.9% after that. You may only claim a $500 discount for each filing period – making the maximum annual discount $6,000 if you file monthly.
Quarterly: The following deadlines apply to those whose sales tax liability in Maryland requires them to file quarterly
|January – March (Q1)||April 20|
|April – June (Q2)||July 20|
|July – September (Q3)||October 20|
|October – December (Q4)||January 20|
Monthly: The following deadlines apply to those whose sales tax liability in Maryland requires them to file monthly:
Annual: The state may also allow you to file once per year if your tax liability is low enough.
If you are late in filing or paying your sales tax owed, there are penalties you may be liable for. The penalty for late filing is 10% with additional interest of no less than 1% per month on the total amount owed. Additional penalty may also be applied if you don’t respond after the first late payment notice is delivered.
The state requires that you file a sales tax return even if zero tax is owed. This can result in a penalty if you don’t submit it by your return due date.
Maryland’s sales tax system is relatively simple compared to some other states, but if you operate in other nearby states or if you are out of state operating in Maryland, you can streamline and simplify how this process works with TaxTools sales tax software. TaxTools provides a range of sorting and data review tools that will help to calculate the sales tax owed based on location and where transactions originate or end. Contact us today and ask to learn more about how TaxTools helps with Maryland sales tax, or click here to signup for a free trial.