Now that the Oct. 15 income tax extension deadline has come and gone (and you’ve hopefully been able to enjoy some well-deserved R&R in its wake), it’s time to focus on another one of the more important tax developments Maryland CPAs have encountered in recent memory.
I’m talking about new Maryland sales tax provisions for digital products. The changes are sure to have broad ramifications for the operations of CPA firms as well as the advice CPAs need to be providing to clients.
Back in June, Gov. Larry Hogan allowed a number of state Senate bills to become law 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, “21st Century Economy Fairness Act.” 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” and “digital codes.” SB 787 also amended Maryland’s new pass-through entity tax election, as well as the new gross receipts tax on digital advertising.
Be sure to review the Tax Tip No. 29 from Maryland’s Comptroller’s Office, which contains details and examples of how the new sales tax provisions operate. Karen Syrylo and other MACPA members have worked with the Comptroller’s staff in drafting the Tax Tip and are continuing to bring issues to the Comptroller’s attention.
For transactions as of March 14, 2021, Maryland’s law provides that the 6% sales and use tax applies to a “retail sale” of tangible personal property, a taxable service, a digital code, or a digital product (Section 11-101(h)(1)). Per the Tax Tip, the new categories of digital product and digital code include things like:
- Electronically accessed prerecorded or live performances
- Audio or video e-greeting cards
- Downloaded music, movies, ring tones, e-books
- Online newspapers, magazines, and publications
- Online games
- Digital photographs and artwork
- Electronically viewed classes and instruction (some exceptions exist for those that are not prerecorded and include interaction between the instructor and participants)
- Electronically accessed computer software (there is exception for certain customized software)
- Codes that allow for the purchase of a digital product
Join the MACPA for answers and insights at the Advanced Tax Institute
The new law raises important questions for practitioners and their clients, and the MACPA will provide answers at the 2021 Advanced Tax Institute; the virtual event is scheduled for Nov. 8-11.
The ATI State Tax Day on Nov. 10 will include a full hour of insights and resources surrounding the new sales tax law. Don’t miss this opportunity to learn more about the new law from some of the issue’s most knowledgeable thought leaders.
You can register for individuals or the four-day event in its entirety. Get complete details here.