Maryland Gov. Larry Hogan allowed a number of Senate bills to become law on June 1 without his signature. Among them was Senate Bill 787, “Digital Advertising Gross Revenues, Income, Sales and Use, and Tobacco Taxes — Alterations and Implementation.”
SB 787 contains amendments to House Bill 932 of 2020. The governor vetoed that bill but the General Assembly overrode that veto earlier this year, making Maryland’s sales tax now applicable to the sale of digital products such as some software and other items. SB 787 also amends Maryland’s new pass-through entity tax election.
The new law is a major change for Maryland sales tax that might apply to sales taxes that are paid on purchases or charged on billings by both CPAs and their clients. Be sure to review the revised Tax Tip No. 29, which was released by the Comptroller’s Office on Thursday.
The new rules are effective for transactions as of March 14, 2021, due to how Maryland law works with respect to governor vetoes and overrides.
Leading up to Gov. Hogan’s decision, MACPA officials and legislative volunteers stressed the importance of allowing SB 787 to become law with officials in the Governor’s Office. Unfortunately, we had no control over interpretations that caused the need for amendments. We also had no control over the General Assembly’s schedule (which saw SB 787 pass on the final day of the legislative session), and no control over when the governor made his final decision.
Now that SB 787 has become law, the Comptroller’s Office is working hard to complete Form 511. The form will be used by Maryland pass-through entities that are electing to have Maryland taxes paid and then deducted at the entity level for federal income tax purposes (i.e., changes the impact of the $10,000 “SALT cap”). The process of completing Form 511 includes finalizing instructions and updating software, after which third-party vendors will need to do the same before releasing them to the public. The exact timing has yet to be announced, though Form 511 is expected to be ready for filing in late June.
Please continue to follow the MACPA’s State Tax Community for up-to-the-minute information and specific details — including details about an upcoming MACPA webinar on the topic.