Should you collect sales tax in Maryland?
Sales tax is levied on retail selling tangible personal property to your customers, including leasing or renting. However, you will collect the sales tax if you determine the nexus in Maryland. A nexus is a presence that may come physically or economically.
A physical nexus is typically created when your business has a Maryland store, warehouse, or office. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds can be on revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Maryland.
A physical nexus is integrated when your business is engaged in the following in Maryland:
- Selling tangible personal property in Maryland.
- Maintaining, occupying, or using a place of business or an office in Maryland.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- You have a stock of goods in Maryland.
Constituting an Economic Nexus in Maryland?
Suppose you are a remote seller (i.e., one who doesn’t have a physical presence in the state), and your business sales in Maryland exceed $100,000 or have made 200 or more transactions during the current or previous calendar year. In that case, you must comply with and register under sales tax rules.
You may also refer to the Maryland Department advisory to learn more about business activities that may create a physical or economic nexus within the state.
How can you Register for Sales tax in Maryland?
You must apply online at the Maryland tax connect registration portal to get a sales tax permit in Maryland.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Maryland.
- Contact information.
- Nature of business.
Is your product or services liable to Sales tax in Maryland?
Tangible Property: Sales tax in Maryland is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: Albeit the services are not subject to sales tax in Maryland, a few exceptions include service or labor costs leading to the creation of tangible personal property, commercial cleaning, credit reporting, etc. For more information on the taxability of services, read here.
Digital Product: Maryland charges sales tax on digital products. So, you must collect the sales tax if you sell digital products such as software, streaming services, e-books, etc. Here (pg. 4) is what Maryland says about digital transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is taxable in Maryland. Click here (pg. 20) for the guidance issued by the state on SAAS.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. To see all information on exemptions, please click here.
How should you collect and calculate state taxes in Maryland?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not Maryland-based. The sales tax is destination-based in Maryland, which means you must collect taxes on tangible property sold to buyers based in Maryland.
Complexities are involved where you have a business nexus, even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Maryland has a base sales tax rate of 6% and no local tax rates.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6%)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of the items sold. If shipping charges are separately stated on the invoice, there will be no tax applicability; however, you need to collect the tax on the total sales price, including shipping charges, if not stated separately.
Additionally, if non-taxable items are sold, shipping charges associated with such a sale are not subject to sales tax. However, when the sale includes taxable and non-taxable items, shipping charges need to be apportioned relatively between the taxable and non-taxable parts of the sale. Accordingly, sales tax applies to the taxable portion of the sale. This link (pg. 6) will take you to the official guidance issued by the state on shipping charges.
How should you file sales tax in Maryland?
E-file: You can e-file your return using Maryland Tax Connect. You can also do the paper filing.
Payments along with returns are also to be remitted. Maryland Tax Connect is used to make online payments. The state accepts payments through checks, EFT, credit cards, etc. Visit the Maryland Department website for more information, or contact us with any doubts.
Even if your sales tax liability is zero, you must file the return to avoid penalty or interest.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Maryland Department assigns you a filing frequency, which can be Monthly or Quarterly.
According to your filing frequency, the due date for filing sales tax would be the 20th Day of the month following the relevant reporting period.
Note: If the due date is a holiday or weekend, the next business day will be considered the final due date. Use the Maryland official website link to learn about due dates and filing frequencies.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty of 10% of sales tax due plus 1% monthly interest. The maximum penalty would be 25% of the tax due. Review the comprehensive guide of penalties and interest issues by the Maryland Department of Revenue.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates.
Sales tax holiday in Maryland
The Maryland sales tax holiday applies to clothing and footwear items costing less than $100. For 2024, it will start on 11 August (12:01 a.m.) and end on 17 August (11:59 p.m.). For detailed information on the sales tax holiday, refer to the Maryland Department advisory here.