What are sales and use taxes?
In Maryland, sales tax is a tax charged when you purchase “tangible personal property” and on some services. Tangible personal property is property that can be physically touched, manufactured, or moved. Maryland law also considers electricity, natural gas, and hotel stays as tangible personal property for tax purposes.
Read the Law: Md. Code, Tax-General §11-101(k) & (m)
Use tax applies when a purchase of tangible personal property is made outside the state of Maryland. When an individual makes an out-of-state, tax-free purchase, they must file a Consumer Use Tax Return. This must be filed within three months of the purchase.
Throughout this article, we will use the term “goods” to mean tangible personal property.
Read the Law: Md. Code, Tax-General §11-101(n)
What do Sales and Use Taxes Apply To?
Goods
In Maryland, most physical goods (called tangible personal property) are subject to sales and use tax. This includes everyday items like:
- Food and beverages
- Clothing and shoes
- Jewelry and accessories
- Vehicles
- Furniture and home goods
- Artwork and collectibles
Many digital products are also subject to sales and use tax including music, movies, e-books, video games, and newspapers/magazines that are distributed electronically.
Read the Law: Md. Code, Tax-General §11-101(c-4)
However, there are important exceptions, including:
- Agricultural Products – Items sold to and used by farmers for agricultural purposes.
Read the Law: Md. Code, Tax-General § 11-201 - Certain Food Sales – Most food sold by grocery or market businesses for off-premises consumption is exempt. However, prepared food—such as hot meals, food packaged for carry-out, or items meant to be eaten on-site—is taxed.
Read the Law: Md. Code, Tax-General § 11-206 - Medicine and disposable medical supplies – Medicine, corrective eyeglasses, diapers, toothbrushes, diabetic care items, and feminine hygiene products are exempt. Many other personal care items are included, see the text of the law for a complete list.
Read the Law: Md. Code, Tax-General § 11-211 - Other Exemptions – There are many additional exemptions for items such as infant car seats, newspapers, textbooks, and more.
Read the Law: Md. Code, Tax-General Title 11, Subtitle 2
Services
Unlike goods, services are only taxable if specifically listed in the law. The following services are subject to Maryland sales and use tax:
- Custom-made goods – Making or printing physical items or digital products specifically for a customer.
- Commercial laundry – Regular cleaning or laundering of items for businesses.
- Cleaning services – Cleaning commercial or industrial buildings.
- Telecommunication services – This includes:
- Mobile phone service;
- Prepaid phone service;
- Premium phone numbers like “900” or “976” that charge extra;
- Extra calling features added to basic phone service;
- Telephone answering services.
- Pay-per-view TV – TV content you pay for separately, like movies or sports.
- Credit reports – Services that provide information about your credit history.
- Security services – Includes:
- Private detectives, security guards, or armored car services;
- Installing or monitoring security systems.
- Utility delivery – Transporting electricity or natural gas when the energy itself is taxed.
- BYO wine privilege – Paying for the right to bring and drink your own wine at certain places (like restaurants or clubs).
- Information technology services – Data processing, web publishing, and other IT-related services.
- Software publishing – Creating and selling system or application software.
Read the Law: Md. Code, Tax-General § 11-101(m)
How much will I pay in sales and use taxes?
Maryland taxes various goods and services at different rates. A 6% tax rate applies to most goods and services. However, vehicle rentals and the sale of alcoholic beverages are taxed at different rates.
- Car and recreational vehicle rentals are taxed at 11.5%. Truck rentals are taxed at 8%.
- Sales of alcoholic beverages are taxed at 9%. This applies to sales of packaged alcoholic beverages as well as beverages served for immediate use.
- Sales of cannabis are taxed at 12%.
- Electronic smoking devices (vapes) are taxed at 20%.
- Vaping liquid is generally taxed at 60%.
Read the Law: Md. Code, Tax-General §11-104
Sales of tobacco are taxed per pack or per cigar.
Read the Law: Md. Code, Tax-General §12-104
Who is Responsible for Collecting and Filing Sales and Use Taxes?
Vendors
The vendor must collect and file sales tax. A vendor is a person in the retail business, who sells finished goods to consumers. Anyone who sells taxable services to consumers must also collect and file sales tax.
Read the Law: Md. Code, Tax-General § 11-701
Marketplace Facilitators
A vendor includes entities defined in the law as “marketplace facilitators.” To illustrate what a marketplace facilitator is, consider Amazon. Many goods sold on Amazon.com are not sold by Amazon, but by third party sellers. Amazon handles payment and delivery of the product. Maryland law requires marketplace facilitators to collect sales tax at the time of purchase.
Read the Law: Md. Code, Tax-General § 11-101
Consumers (for tax-free, out of state purchases)
Use tax must be filed by any consumer who makes a tax-free purchase in another state.
Who is Exempt from Sales and Use Taxes?
Sales to an exempt organization
When selling to certain organizations, vendors do not have to collect sales tax. Exempt organizations include:
- cemetery companies;
- credit unions;
- veterans groups;
- volunteer fire, ambulance, and rescue companies; and
- various non-profit organizations located in Maryland.
Before making a purchase, an exempt organization must give the vendor an exemption certificate. To obtain an exemption certificate, an organization must apply to the Comptroller of Maryland.
Read the Law: Md. Code, Tax-General § 11-408(a)
Sales by an exempt organization
Generally, even an exempt organization must collect and file sales tax when it sells goods. However, there are certain exemptions, including:
- Sales made by a church or religious organization – when those sales are made for the general purposes of the organization;
- Sales of magazine subscriptions by an elementary or secondary school located in the state of Maryland – sales must be made by students and proceeds must be used for educational benefits for the school or students;
- Sales of food to support nationally organized and recognized veterans of the armed forces of the United States – organization members must serve the food, and the food must be consumed on premises; and
- Sales of food to support a volunteer fire department, company, or rescue squad – the department, company, or squad must serve the food.
- For more exemptions, read Code of Md. Regulations 03.06.01.22.
People or organizations that are exempt from paying sales tax on purchases must give the vendor an exemption certificate before the sale. A vendor who sells to an exempt person or organization must keep a record of the certificates.
Read the Law: Md. Code, Tax-General § 11-408
Casual and isolated sales
People who do not regularly sell goods or taxable services are exempt from sales and use tax if they meet two conditions.
- The price of the product or service being sold must be less than $1,000.
- They may not sell through a dealer or an auctioneer.
For example, if an accountant was closing his business and sold his office furniture, he would not have to pay sales and use tax, as long as the furniture was sold for less than $1,000, and no dealer or auctioneer was used to facilitate the sale.
Read the Law: Md. Code, Tax-General § 11-209
How do I file sales and use taxes?
Sales tax filing
A vendor who collects $15,000 or more of sales tax in a year, must file returns monthly. The filing is due on the 20th day of the month. However, if the sales tax collected is less than $15,000 in that year, filing may be done quarterly. The taxpayer must complete the filing on the 20th day of the month after the end of each quarter, as follows:
- April 20, for January-March;
- July 20, for April-June;
- October 20, for July-September; and
- January 20, for October-December.
The Comptroller of Maryland may choose to convert a taxpayer from a quarterly filer to a monthly filer. For example, after collecting $3,750.00 in sales taxes for two quarters, or perhaps a greater amount for just one quarter, the Comptroller may direct the taxpayer to file each month. On the other hand, the Comptroller usually does not force a taxpayer to file less often (quarterly instead of monthly.)
Before filing sales tax, the taxpayer must have a Federal Employer Identification Number (FEIN) from the Internal Revenue Service (IRS). The taxpayer must also submit a Combined Registration Application with the Comptroller to receive a sales and use tax license.
Paper filing – Sales taxes can be filed on paper and mailed to the Comptroller. After a vendor obtains a sales and use tax license, the Comptroller will automatically send the vendor a form to report sales taxes.
Electronic filing – Sales taxes can be filed online through the Comptroller website. To file online, the organization must first set up a bFile account on the site.
Use tax filing
A consumer files the use tax by filling out the Consumer Use Tax Return for Purchases form. Any person who made a tax-free purchase in another state must file this form on the 20th of the month after the end of each quarter, as follows:
- April 20, for January-March;
- July 20, for April-June;
- October 20, for July-September; and
- January 20, for October-December.
Are there penalties for late or no filing?
If you file a return late, you must pay two penalty fines. The first is a 10% penalty added to the taxes due. The second is an interest penalty of no less than 1% per month (or partial month). The filing form includes a section to record these fines.