Maryland sales tax guide for SaaS businesses

Is SaaS taxable in Maryland?

Understanding whether or not your SaaS product is taxable in Maryland can be crucial to maintaining compliance and avoiding unnecessary expenses.

Maryland does impose sales tax on certain digital products, but the treatment of SaaS can be somewhat ambiguous. Generally speaking, SaaS falls under the category of ”digital products” and is thus subject to Maryland’s 6% sales tax rate. However, there are exceptions and exemptions to consider.

It’s important to note that the tax laws surrounding SaaS are constantly evolving, and it can be challenging to keep up with the latest changes. In 2021, Maryland began taxing SaaS and many enumerated digital goods and services when sold to individual consumers. However, Maryland exempts such sales when sold to business users in most cases.

How to determine if your product is taxable in Maryland

Whether or not your SaaS product is taxable in Maryland will depend on a variety of factors, including the nature of your business and the specific services you offer. It is crucial to consult with a tax expert to evaluate your specific circumstances and ensure compliance with Maryland’s tax laws.

Another critical factor to consider when determining SaaS taxation in Maryland is sales tax nexus, or the connection between a business and a state that would require it to collect sales tax.

Maryland has both physical and economic nexus requirements for sellers:

• Physical nexus: Employees, office locations, or other significant physical presences in the state
• Economic nexus: Gross revenue exceeding $100,000 or 200 separate transactions within the state during the calendar year

Sales tax compliance in Maryland

It is essential for businesses with taxable products and nexus and Maryland to follow certain steps to avoid penalties and fines:

• Register for a sales tax permit: All businesses with nexus in Maryland must register for a sales tax permit.
• Collect sales tax: Once you have your sales tax permit, you need to collect the appropriate amount of sales tax on taxable transactions, including any taxable SaaS products and digital goods.
• File sales tax returns: Businesses must file periodic sales tax returns, typically on a monthly, quarterly, or annual basis, depending on the sales volume. When filing the return, you need to report the total sales and taxable sales, as well as the sales tax collected during the reporting period.
• Remit collected sales tax: Along with filing your sales tax return, you must also remit the collected sales tax to the state. Failure to do so could result in penalties and interest charges.

Remember, determining the taxability of your product in Maryland is dependent on various factors. By understanding these factors and seeking expert advice, you can confidently comply with Maryland’s tax laws and continue to grow your business.