Maryland Sales and Use Taxes
Topics on this page:
- What is Sales and Use Tax?
- What do Sales and Use Taxes Apply To?
- Who is Responsible for Collecting and Filing Sales and Use Taxes?
- Who is Exempt from Sales and Use Taxes?
- Filing Sales and Use Taxes
- Penalties for Late or No Filing
What is sales and use tax?
Sales tax is a state tax on the purchase of most tangible personal property and on some services in Maryland. Tangible personal property is property that can be physically touched, manufactured, and moved. In Maryland, it also includes electricity, natural gas, and the right to stay/rent a room (such as a hotel room).
Read the Law: Md. Code, Tax-General §11-101(k)
Use tax applies when a purchase of tangible personal property is made outside the state of Maryland. If the individual makes an out-of-state, tax-free purchase, then the individual must file a Consumer Use Tax Return within three months of the purchase.
Throughout this article, we will use the term “goods” to mean tangible personal property.
What do Sales and Use Taxes Apply To?
Goods - All goods are subject to sales and use tax. This includes food, clothing, jewelry, vehicles, furniture, and art. However, there are exceptions, including:
- Agricultural Products – Items sold/bought are not taxed if they are bought by a farmer and are being used for an agricultural purpose. Read the Law: Md. Code, Tax-General § 11-201
- Food Sales – Food items that are sold by a substantial grocery or market business for consumption off the premises are not considered taxable prepared food. However, food items that are prepared for consumption on the grocer’s premises or are packaged for carry out are considered prepared food and are subject to a 6% sales tax. Read the Law: Md. Code, Tax-General § 11-206
- There are additional exemptions. Read the Law: Md. Code, Tax-General Title 11, Subtitle 2
Services - Only services listed in the law are subject to sales and use taxes in Maryland. These services include, but are not limited to:
- Manufacturing or producing personal property;
- Transportation of electricity or natural gas;
- Commercial cleaning and janitorial services;
- Certain telecommunications services;
- Credit reporting;
- Security services; and
- The privilege to drink wine that has not been bought from a restaurant, club or hotel.
Read the Law: Md. Code, Tax-General § 11-101(m)
Rates - Maryland taxes various goods and services at different rates. A 6% tax rate applies to most goods and services. However, vehicle rentals and the sale of alcoholic beverages are taxed at different rates.
- Car and recreational vehicle rentals are taxed at 11.5%. Truck rentals are taxed at 8%.
- Sales of alcoholic beverages are taxed at 9%. This applies to sales of packaged alcoholic beverages as well as beverages served for immediate use.
Read the Law: Md. Code, Tax-General §11-104
Who is Responsible for Collecting and Filing Sales and Use Taxes?
The vendor must collect and file sales tax. A vendor is a person in the retail business, who sells finished goods to consumers. Anyone who sells taxable services to consumers must also collect and file sales tax.
Read the Law: Md. Code, Tax-General § 11-701
A vendor includes entities defined in the law as “marketplace facilitators.” To illustrate what a marketplace facilitator is, consider Amazon. Many goods sold on Amazon.com are not sold by Amazon, but by third party sellers. Amazon handles payment and delivery of the product. Maryland law requires marketplace facilitators to collect sales tax at the time of purchase.
Read the Law: Md. Code, Tax-General § 11-101
Use tax must be filed by any consumer who makes a tax-free purchase in another state.
Who is Exempt from Sales and Use Taxes?
Sales to an exempt organization - When selling to certain organizations, vendors do not have to collect sales tax. Exempt organizations include cemetery companies; credit unions; veterans groups; volunteer fire, ambulance, and rescue companies; and various non-profit organizations located in Maryland. Before making a purchase, an exempt organization must give the vendor an exemption certificate. An organization must apply to the Comptroller of Maryland to obtain an exemption certificate.
Read the Law: Md. Code, Tax-General § 11-408(a)
Sales by an exempt organization - Generally, even an exempt organization must collect and file sales tax when it sells goods. However, there are certain exemptions, including:
- Sales made by a church or religious organization, when those sales are made for the general purposes of the organization;
- Sales of magazine subscriptions by an elementary or secondary school located in the state of Maryland. Those sales must be made by students. Proceeds must be used for educational benefits for the school or students;
- Sales of food to support nationally organized and recognized veterans of the armed forces of the United States. Organization members must serve the food, and the food must be consumed on premises; and
- Sales of food to support a volunteer fire department, company, or rescue squad. The department, company, or squad must serve the food.
- For more exemptions, read Code of Md. Regulations 03.06.01.22.
People or organizations that are exempt from paying sales tax on purchases must give the vendor an exemption certificate before the sale. A vendor who sells to an exempt person or organization must keep a record of the certificates.
Read the Law: Md. Code, Tax-General § 11-408
Casual and isolated sales - People who do not regularly sell goods or taxable services are exempt from sales and use tax if they meet two conditions.
- The price of the product or service being sold must be less than $1,000.
- They may not sell through a dealer or an auctioneer.
For example, if an accountant was closing his business and sold his office furniture, he would not have to pay sales and use tax, as long as the furniture was sold for less than $1,000, and no dealer or auctioneer was used to facilitate the sale.
Read the Law: Md. Code, Tax-General § 11-209
Filing Sales and Use Taxes
Sales tax filing - A vendor who collects $15,000 or more of sales tax in a year, must file returns monthly. The filing is due on the 20th day of the month. However, if the sales tax collected is less than $15,000 in that year, filing may be done quarterly. The taxpayer must complete the filing on the 20th day of the month after the end of each quarter, as follows:
- April 20, for January-March;
- July 20, for April-June;
- October 20, for July-September; and
- January 20, for October-December.
The Comptroller of Maryland may choose to convert a taxpayer from a quarterly filer to a monthly filer. For example, after collecting $3,750.00 in sales taxes for two quarters, or perhaps a greater amount for just one quarter, the Comptroller may direct the taxpayer to file each month. On the other hand, the Comptroller usually does not force a taxpayer to file less often (quarterly instead of monthly.)
Before filing sales tax, the taxpayer must have a Federal Employer Identification Number (FEIN) from the Internal Revenue Service (IRS). The taxpayer must also submit a Combined Registration Application with the Comptroller to receive a sales and use tax license.
Paper filing - Sales taxes can be filed on paper and mailed to the Comptroller. After a vendor obtains a sales and use tax license, the Comptroller will automatically send the vendor a form to report sales taxes.
Electronic filing - Sales taxes can be filed online through the Comptroller website. To file online, the organization must first set up a bFile account on the site.
Use tax filing - A consumer files the use tax by filling out the Consumer Use Tax Return for Purchases form. Any person who made a tax-free purchase in another state must file this form on the 20th of the month after the end of each quarter, as follows:
- April 20, for January-March;
- July 20, for April-June;
- October 20, for July-September; and
- January 20, for October-December.
Penalties for Late or No Filing
If you file a return late, you must pay two penalty fines. The filing form includes a section to record these fines. The first is a 10% penalty added to the taxes due. The second is an interest penalty of no less than 1% per month (or partial month).