What Is Maryland Sales Tax and How Does It Apply?
Navigate Maryland's sales and use tax system. This guide clarifies how this consumption tax impacts purchases and responsibilities for residents and businesses.
Sales tax is a common form of consumption tax applied at the state level across the United States. It is typically levied on the sale of goods and certain services. This article provides an overview of Maryland’s sales and use tax, detailing its application, what goods and services are subject to it, common exemptions, and the responsibilities for collection and payment.
Understanding Maryland Sales and Use Tax
Maryland imposes both a sales tax and a use tax on transactions within the state. The sales tax applies to the sale or rental of tangible personal property and specific services. This tax is collected by the vendor at the time of purchase.
A complementary use tax applies when sales tax was not collected on a taxable purchase, but the item is used within Maryland. Consumers are responsible for remitting this use tax directly to the state.
The sales and use tax rate in Maryland is 6% for goods and services. Certain items have different rates; for example, alcoholic beverages are taxed at 9%, car and recreational vehicle rentals at 11.5%, and truck rentals at 8%. Maryland does not have additional local sales taxes, meaning the state-imposed rate applies uniformly across all counties and municipalities.
Taxable Goods and Services
In Maryland, sales tax applies to tangible personal property. Examples of such taxable goods include clothing, electronics, furniture, vehicles, art, and most retail merchandise. The tax also extends to prepared food, electricity, natural gas, and the right to occupy a hotel room.
Beyond tangible goods, services are also subject to sales tax in Maryland. These include services related to the manufacturing or production of personal property, transportation of electricity or natural gas, and commercial cleaning or janitorial services. Telecommunication services, credit reporting services, and security services are also taxable.
The tax also applies to fabrication services, printing, and the production of tangible personal property by special order. Digital products, such as digital codes, streaming services, and Software as a Service (SaaS), are considered taxable. When applicable, the tax applies to the total sales price, including any charges for delivery or handling that are part of the sale.
Exemptions from Sales Tax
Exemptions exist to reduce the tax burden on essential goods and services in Maryland. Food for home consumption, commonly known as groceries, is exempt from sales tax. This includes unprepared food items like fresh fruits, vegetables, milk, bread, and cereals. However, prepared food, soft drinks, candy, and alcoholic beverages remain taxable, even if purchased from a grocery store.
Prescription drugs and medical supplies are also exempt from sales tax. This includes prescription medications, disposable medical supplies, and durable medical equipment (DME) when prescribed by a healthcare provider. Items such as wheelchairs, oxygen tanks, and diabetic testing strips fall into this exempt category. Over-the-counter medications and general medical accessories are subject to the standard sales tax rate.
Professional services, such as legal, accounting, and medical services, are exempt unless specifically listed as taxable. Sales made to non-profit organizations, government entities, and religious organizations are also exempt, requiring an exemption certificate from the purchasing entity. Educational materials, while taxable, may qualify for exemption during the annual “Shop Maryland Tax-Free Week” for items priced under $100.
Agricultural products and machinery are exempt from sales tax. Items bought by farmers for agricultural purposes, such as farm equipment, seeds, fertilizers, and livestock feed, are exempt. Additionally, machinery and tools used directly in manufacturing processes are exempt from sales tax, along with goods purchased for resale. These exemptions require proper documentation to be provided by the purchaser to the vendor.
Collection and Payment Responsibilities
Vendors are responsible for collecting sales tax from the consumer at the point of sale. This collected sales tax does not belong to the vendor but must be remitted to the Comptroller of Maryland. Vendors are required to register with the Comptroller’s office to obtain a sales tax permit.
Consumers are responsible for paying use tax directly to the state when a taxable purchase is made without sales tax being collected by the seller. This frequently occurs with online purchases from out-of-state retailers who may not be registered to collect Maryland sales tax. In such instances, consumers are expected to file a Consumer Use Tax Return within three months of the purchase.
Vendors are assigned reporting periods based on their sales tax collection volume. Businesses collecting $15,000 or more in sales tax annually file monthly, with returns due by the 20th day of the month following the reporting period. Those collecting less than $15,000 annually may file quarterly, with due dates falling on the 20th day of April, July, October, and January. The Comptroller of Maryland has the authority to adjust a vendor’s filing frequency if collection thresholds change.