Maryland Imposes Sales Tax on Digital Products and Codes

May 10, 2021

By Yehuda Weinman

Maryland’s 6% sales tax is imposed on retail sales and specifically enumerated taxable services. Effective March 14, 2021, the sales tax is also imposed on the sale of digital products and digital codes.1

A 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.2 House Bill 932 lists examples of digital products/codes that are subject to sales tax. Per the bill, specifically included as taxable digital products and codes are music, e-books, ring tones, motion pictures, newspapers and so forth. The bill does not mention that electronically delivered software or remotely accessed software (“Software as a Service” or “SaaS”) are included in the definition of digital products.

SaaS is a type of cloud computing service that allows a customer to access a provider’s applications remotely. Purchasers do not typically download or install any software on their computers or devices, and there is no transfer of tangible personal property. Instead, use of this software is accessed over the internet.

The recently published guidance on digital products3 provides specific examples of digital products/codes that are now subject to sales tax in Maryland if obtained or delivered by electronic means. The publication’s software section confirms that sales of electronically delivered software and sales of SaaS are considered digital projects and therefore subject to sales tax effective March 14, 2021.4

Some other examples of taxable digital products/codes include:

  • Books or e-books
  • Digital downloads or streams of movies, music videos, news and entertainment programs, live events, sporting events, tutorials
  • Online classes, instruction or similar products
  • Sales, subscriptions or licenses to access content online or use software applications
  • Customer lists, mailing lists, medical records and similar products
  • Prerecorded or live music, performances, speeches, documentaries5

Along with the aforementioned, services that result in fabricating, printing or producing digital products (e.g., service that provides electronically delivered information reports) are also subject to sales tax under the law change.6

Furthermore, charges by a nonprofit or tax-exempt organization for viewing continuing education classes, seminars or conferences, and charges from a college or graduate school for viewing courses or online lectures are subject to sales tax. 7,8
The above are just a few examples of products and services that are defined as a digital product or code and subject to sales tax in Maryland effective March 14, 2021. Effective immediately, Maryland businesses—and out-of-state businesses with nexus in Maryland—that sell digital products and/or codes to Maryland customers have both a collection and remittance obligation in the state of Maryland.

Digital Advertising Tax

Maryland also became the first state to enact a digital advertising tax (H.B. 732). The tax is being imposed on companies that derive revenue from digital advertising services in the state. Digital advertising services include advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services. The tax applies to companies with at least $100 million of global annual gross revenues and $1 million of gross revenues derived from digital advertising services in Maryland. The tax rate is determined by a company’s global annual gross revenue; the rate starts at 2.5% and goes as high as 10%.

The Maryland Senate passed S.B. 787 which made some changes to the recently enacted digital advertising tax. Assuming the governor doesn’t sign or veto the bill, which is expected, S.B. 787 would delay the start date of the tax until January 2022. Several groups have filed a complaint in federal court stating that the tax is discriminatory.

While Maryland is the first state to impose an advertising tax, several states have proposed similar bills. We’ll just have to wait and see what happens in Maryland.


1Md. Code Ann. Tax-Gen. § 11-102(a)(1) and (2)
2House Bill 931 2-1302.1 11-101 (c-4)
3Maryland Business Tax Tip #29 – Sales of Digital Products and Digital Code
4Maryland Business Tax Tip #29 – Page 10
5Maryland Business Tax Tip #29 – Pages 4 & 5
6Maryland Business Tax Tip #29 – Page 6
7Maryland Business Tax Tip #29 – Page 15
8If passed, S.B. 787 (discussed further down in the article) will provide an exclusion for these types of services from the sales tax.

About Yehuda Weinman

Yehuda Weinman is a Tax Manager in the firm’s State and Local Tax Group.