Understanding Maryland Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Maryland.
In Maryland a sales tax is imposed on a retail sale, including leases or rentals, of tangible personal property or a taxable service in the state. The use tax is imposed on the use of tangible personal property or a taxable service. The main purpose of the use tax is to insure that you pay taxes on goods purchased outside of Maryland. However, you do not have to pay use tax if sales tax has already been paid.
Sales and use tax rate. Maryland's state tax rate is 6 percent. The following services are considered to be taxable services:
- fabrication, printing, or producing personal property by special order
- commercial cleaning or laundry
- cellular telephone or other mobile telecommunications services
- 900-type telecommunications services
- custom calling services provided in connection with basic telephone services
- telephone answering services
- pay per view television services
- credit reporting and security services
- cleaning of commercial or industrial buildings
Leases of Taxable Personal Property Are Taxable
A lease of tangible personal property is considered a sale and, therefore, is subject to sales and use tax. Each lease payment period is considered a separate lease or sale and the tax applies to the entire lease payment for property acquired by lease.
Vendors Are Responsible for Paying Collected Sales Tax
In Maryland the purchaser must pay the sales and use tax to the vendor. If you are a vendor, you collect the tax as a trustee for the state and you must account for the amount collected. If you are a vendor, you do not have to collect the sales and use tax if:
- the buyer provides you with an exemption certificate or
- the buyer provides you with a properly signed resale certificate.
Absorbing the tax is not permitted. A seller may not advertise, state, or otherwise hold out that any part of the sales and use tax:
- will be assumed or absorbed by you
- will not be added to the taxable price of tangible personal property or a taxable service, or
- will be refunded if added to the taxable price of tangible personal property or a taxable service
Tax Permits Are Required
To obtain a vendor's license you must submit an application to the Comptroller for each place of business where you will sell tangible personal property or a taxable service. This sales tax license is valid indefinitely.
Many Sales Can Be Tax Exempt
Maryland includes many specific items that are exempt from sales tax — for example, food sold in grocery stores, prescription medicines, and newspapers are generally not taxable. You'll want to check to see if you or the products you purchase or sell are exempt from the tax.
In Maryland, exemption certificates can be used by qualified nonprofit organizations, government entities, and purchasers of utilities that will be used in the production process. The state will accept a valid determination letter of tax-exempt status issued by the IRS under the federal tax code as evidence that an organization qualifies for exemption.
Sales Tax Does Not Apply to Purchases for Resale
The sales and use tax does not apply to sales of tangible personal property when you, the purchaser, intends to resell the property or use the property in a production activity as part of other tangible personal property to be produced for sale. A resale certificate is generally required from the purchaser for purchases of property or services for resale, otherwise the vendor must collect the tax.
Resale exemption certificate requirements. Certificates for resale should contain the following information:
- the name and address of the purchaser
- the name of the seller to whom it is given
- a reason for the exemption
- an authorized signature
- the purchaser's license or registration number
- the date and
- a statement of the purchaser's good faith in claiming the exemption.
Maryland Permits Blanket Resale Certificates
A purchaser making repeated purchases from a vendor may provide a blanket resale certificate to the vendor. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. The purchaser claims the resale exclusion on subsequent purchases by providing the Maryland registration number on purchase orders.
The blanket resale certificate should follow the general outline below:
Suggested blanket resale certificate
This is to certify that all tangible personal property or taxable services purchased from:_________________ is intended for resale as tangible personal property or for use or incorporation as a material or part of other tangible personal property to be produced for sale.
This certificate shall be considered a part of each order which we shall give, provided that the order bears our Maryland Sales and Use Tax Registration Number, and is continued in force until revoked.
|_____________________________ ||Buyer's Name |
|_____________________________ ||Buyer's Address |
|_____________________________ ||Signature |
|_____________________________ ||Buyer's MD Sales Use Tax |
|_____________________________ ||Date |
Physical Presence Triggers Sales Tax Liability
Maryland does not have a statute that specifically taxes out-of-state mail order and catalogue sellers. You will be responsible for paying this tax only if you have physical presence within Maryland. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Maryland? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Maryland for purposes of taking and transmitting orders from Maryland? If your employee or independent contractor goes into Maryland to take or transmit orders your business may have physical presence in Maryland. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Maryland for purposes of delivering property? Frequent deliveries in Maryland by your trucks will give you physical presence in Maryland.
Maryland Provides a Sales Tax "Bracket System."
The following sales tax brackets have been issued by the state of Maryland.
|Taxable Price ||Amount of Tax |
|$0.16 ||0.01 |
|$0.17 to 0.33 ||0.02 |
|$0.34 to 0.50 ||0.03 |
|$0.51 to 0.66 inclusive ||0.04 |
|$0.67 to 0.83 inclusive ||0.05 |
|over $0.84 ||0.06 |
Claim Must Be Filed for Refund of Overpayments
As a seller, if your refund claim does not exceed $250, you may request a refund by deducting the amount from the total tax due with any return. If your claim is for more than $250 or in excess of the amount of tax reported on the return, you must file a claim for refund. When you file a claim for refund, you must include supporting documents. Your claim for a refund of sales and use tax must be filed before four years from the date the tax was paid.
Maryland Imposed Use Tax on Out-of-State Purchases
For a transaction to be subject to sales and use tax in Maryland, two items must be present. First, there must be a retail sale or a use in Maryland; and secondly, the object of the sale or use must be tangible personal property or a taxable service.
In Maryland a buyer who does not pay the sales or use tax to the vendor must pay the sales and use tax that is due. This sales or use tax is paid with the return that covers the period in which the purchase was made. To the extent that you pay another state a tax on the purchase of tangible personal property or a taxable service, the tax does not apply to use of the property or service in Maryland. If the tax paid to another state is less than Maryland's sales and use tax, you as a purchaser, must pay the difference.