Maryland Sales Tax
Maryland Sales Tax At a Glance
State rate: 6%
Maximum combined rate: 6%
Tax Holidays: Energy Star, Back to School
Governing Body: Maryland Department of Revenue
The State of Maryland tax system is 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 small business has nexus in the state and determine if the goods and services you sell are taxable, the system in Maryland is relatively straightforward.
Maryland Sales Tax Rates
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 the District of Columbia may affect your small business depending on where you operate, but for transactions that originate or take place in Maryland, the rate is a flat 6%.
Determining Sales Tax Nexus in Maryland
The first step in determining if you need to collect sales taxes in the State of Maryland is to check if you have sales tax nexus in the state. Nexus refers to physical or economic presence in the state and applies to those who have a significant presence that would require them to collect sales tax on certain transactions.
- Physical goods located in a Maryland warehouse (such as an FBA warehouse)
- An employee who is physically present in the state
- Any ownership of property or personal property in the state
- Office or physical place of business in the state
- If a company enters the state repeatedly for service or repair to tangible personal property such as heating and cooling systems
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, if your inventory is stored in Maryland locations, 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.
Maryland’s economic nexus law went into effect in 2019 and requires all remote sellers who operate in Maryland to collect and remit sales tax if they deliver goods from 200 or more transactions or make $100,000 or more in gross revenue from sales into Maryland.
What Is Eligible for Sales Tax in Maryland?
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. Here are factors to keep in mind when determining your sales tax burden:
- Services – In Maryland, most services are exempt from sales tax with the exception of Janitorial and Cleaning services of industrial or commercial buildings and security services, including residential and commercial monitoring, guard services, private detectives, and other security related services (not including alarm system installation). Maryland has a list of special exceptions on the Comptroller’s website.
- Bringing Items in from Outside the State – If you purchase an item from outside the state of Maryland and bring it into the state you may be responsible for paying sales tax on that item directly if it was not collected by the merchant.
- Different Rates – Some goods are taxed at different rates than the blanket sales tax rate in Maryland. For example, alcoholic beverages are taxed at a rate of 9% instead of 6%. An 11.5% tax rate is charged on certain vehicle rentals, and there are special tax rates for certain types of purchases or services that should be evaluated on the Department of Revenue website.
- Exceptions to Sales Tax in Maryland – Exceptions to sales tax in Maryland include prescription medicine and equipment, farm equipment, equipment used in general production, and certain types of snack food. You can read a full list of tax-free exceptions on the Department of Revenue website.
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:
- Register to collect, accrue and remit taxes.
- Combined Registration Application from the Department of Revenue.
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:
- For Those in State – Maryland is a destination-based sales tax state. So the sales tax is based on where someone lives when you send them their goods. Because the state has a flat 6% sales tax rate, this doesn’t affect those who operate fully in the state.
- Out of State Sellers – If you are not located in the state of Maryland but have sales tax nexus and must collect sales tax on your sales there, you will once again collect at a flat 6% rate. It is important to ensure you establish that nexus first, so you are collecting properly. Separately stated shipping charges are not taxable in the state, though handling is so if the two are combined, sales tax must be collected on both.
- Filing Your Return – You can pay sales tax to the state of Maryland through their bFile online portal.
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 – June (Q2)
|July – September (Q3)
|October – December (Q4)
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.
Penalties and Interest for Late Payments
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 Department of Revenue (Maryland DOR) Website
- Online tax filing and business portal for Maryland
- Maryland Form RAD097 for out of state sales tax collection
Maryland Sales Tax Software
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’ sales tax calculator 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.
Last edited May 2023