Maryland Economic Nexus: Sales Tax Rules for Sellers
For remote sellers, understanding Maryland sales tax is crucial. This guide provides a clear path to determining your obligation and managing state compliance.
The United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. changed the landscape of sales tax. The ruling permits states to mandate that out-of-state sellers, called remote sellers, collect and remit sales tax even if they lack a physical presence in the state. This concept is known as economic nexus, and following the decision, Maryland enacted laws that establish when a remote seller has a significant economic connection to the state.
Maryland’s Economic Nexus Thresholds
A remote seller establishes economic nexus with Maryland if it meets one of two criteria within the previous or current calendar year. Businesses must register and collect sales tax if they have either gross revenue from sales in Maryland exceeding $100,000 or complete 200 or more separate sales transactions for delivery into the state. These thresholds became effective on October 1, 2018. Once a seller crosses either threshold, the requirement to register and begin collecting tax typically starts on the first day of the following month.
The $100,000 gross revenue threshold includes all sales of tangible personal property and taxable services delivered into Maryland, even those not subject to sales tax. For example, a business could sell $80,000 in taxable electronics and $30,000 in non-taxable goods into Maryland. Their total gross revenue of $110,000 surpasses the monetary threshold, creating an obligation to register.
The transaction threshold is based on the number of separate sales transactions, regardless of the dollar value of each sale. A company selling a high volume of low-cost items could meet this requirement without approaching the revenue threshold. For instance, a business that sells 250 separate items for $10 each into Maryland would have only $2,500 in gross revenue but would still have economic nexus because it exceeded the 200-transaction limit.
Information Needed for a Sales and Use Tax License
To complete the Maryland Combined Registration Application (CRA), businesses should gather specific information. The primary document needed is the Federal Employer Identification Number (FEIN), though a sole proprietorship applying only for this license can proceed without one. The CRA is a comprehensive application used to register for various business tax accounts.
You will need:
- Legal business name and any “doing business as” (DBA) or trade names
- Business structure, such as corporation or partnership, and physical and mailing addresses
- Names and Social Security numbers for all owners, partners, or corporate officers
- A description of business activities and the products or services sold
- The date the business first established nexus in Maryland
The Registration and Filing Process
The most efficient method to register is to submit the Combined Registration Application through the Maryland Tax Connect portal, the state’s online system for business tax services. Introduced in February 2024, this portal replaced the older bFile system for new registrations and filings. While a paper application is available, the online process is faster. There is no fee to register for a Maryland sales and use tax license.
Upon successful submission and processing of the application, which can take a couple of weeks, the Comptroller of Maryland will issue a sales and use tax license number. The business will also receive information regarding its assigned filing frequency. This frequency—typically monthly, quarterly, or annually—is based on the business’s projected sales tax liability.
Once registered, the business must collect the 6% state sales tax on all taxable sales delivered to Maryland addresses and remit these funds to the state. Filing returns and remitting payments are also done through the Maryland Tax Connect portal. Returns are due by the 20th day of the month following the end of the reporting period. A return must be filed for every period, even if no sales were made; this is known as a “zero return.”
Addressing Past Due Tax Obligations
Maryland offers a Voluntary Disclosure Agreement (VDA) program, a formal agreement that allows taxpayers to come forward and pay overdue taxes. In exchange for the taxpayer voluntarily paying the back taxes and associated interest, the state agrees to waive penalties. This program provides a path to compliance for businesses that met economic nexus thresholds in prior periods but failed to register.
Eligibility is restricted to taxpayers who have not been previously contacted by the Comptroller’s office about the tax liability, such as through an audit. The program is confidential, and a business can begin the process anonymously through a third-party representative, like a tax professional, to negotiate the terms of the agreement.
The process begins by submitting an application that describes the business’s activities in Maryland and provides an estimate of the tax due. The standard “lookback period” for sales and use tax under a VDA is four years, meaning the business will be responsible for paying taxes from the previous four years. Once the agreement is finalized, the taxpayer is usually given 60 days to provide detailed sales data and remit the full payment of tax and interest.