This month we travel to the birthplace of religious freedom in America, the mid-Atlantic state of Maryland. Formed by George Calvert in the early 17th Century, the state was intended as a refuge for persecuted Catholics from England. George Calvert was the first Lord of Baltimore and the first English proprietor of the then-Maryland colonial grant. Maryland was the seventh state to ratify the U.S. Constitution and played a pivotal role in the founding of Washington D.C., which was established on land donated by the state.
Maryland is defined by its abundant waterways and coastlines on the Chesapeake Bay and Atlantic Ocean. Its largest city, Baltimore, has a history as a major seaport, and is also home to such tourist attractions as the National Aquarium and the Maryland Science Center.
Maryland possesses a variety of topography within its borders, contributing to its nickname- America in Miniature. Sandy dunes and seagrass paint the landscape in the east. Low marshlands with lots of wildlife are situated next to the Chesapeake Bay. Gently rolling hills full of Oak Forests blanket the piedmont region. To the west, you can find pine groves amongst the mountains.
Business Climate
The state is heavily industrialized, with a booming economy, and influential technology centers. Its computer industries are some of the most sophisticated in the United States, and the federal government has invested heavily in the area. Maryland is home to several large military bases, including Joint Base Andrews where Air Force 1 is kept, and scores of high-level government jobs.
Maryland’s economy benefits from the state’s proximity to the federal government in Washington DC, with an emphasis on technical and administrative work for the defense/ aerospace industry and bio-research laboratories. Residents of Maryland also staff satellite government headquarters in the suburban or exurban Baltimore/ Washington area.
Maryland is a major center for life sciences and research and development. With more than 400 biotechnology companies located in the state, it is the fourth-largest area in this field in the country. Some institutions and government agencies that specialize in research and development include the Johns Hopkins University, the Goddard Space Flight Center, the National Institutes of Health (NIH), the Walter Reed National Military Medical Center and the Federal Food and Drug Administration (FDA).
Commercial fishing is a well-known industry in Maryland, centered around the Chesapeake Bay, but also including activity off the short Atlantic seacoast. The largest catches by species are the blue crab, oysters, striped bass, and menhaden. The Bay also has an abundant supply of waterfowl in its wildlife refuges, which supports the tourism sector of sportsmen.
Tax Climate
The top individual income tax rate is 5.75% and the top corporate income tax rate is 8.25%.
Apportionment: Maryland taxpayers apportion income using a single sales factor formula.
Maryland follows destination-based sourcing for the receipts of services.
Sales Tax Structure
The state sales tax rate is 6% and the highest combined rate is also 6%.
Generally, sales of digital products in Maryland are taxable. Maryland imposes sales and use tax on sales of prewritten computer software delivered electronically. The state does not impose sales and use tax on the sales of custom computer software delivered electronically. Maryland recently (March 2021) changed its rules to impose sales and use tax on sales of software as a service (SaaS). How products are produced, sold and delivered is critical to determining the tax status.
Maryland has an economic nexus law where if an out of state seller sells $100,000 or makes 200 transactions into the state, sellers need to collect and remit sales tax on those transactions. This threshold applies to all transactions in the current or previous calendar year. Transactions that are included in this threshold include gross revenue from sales of tangible personal property delivered into the state, sales of software delivered into the state, digital goods delivered into the state, exempt sales of tangible personal property, exempt sales of software and exempt sales of digital goods. Transactions that are excluded from this threshold include exempt services. This legislation went into effect on October 1, 2018.
A marketplace facilitator that has an obligation to collect Maryland sales tax, sells or facilitates sales of tangible personal property into Maryland, and processes payments on behalf of sellers must collect and remit sales tax on all sales made through the marketplace for delivery into Maryland. However, a marketplace facilitator and seller may ask for a waiver of this collection requirement if:
- The marketplace facilitator is a publicly traded communications company;
- The marketplace facilitator and marketplace seller have an agreement that the seller will collect and remit applicable taxes; and
- The marketplace seller provides the facilitator with evidence that the seller is licensed to engage in the business of an out-of-state vendor in Maryland.
This legislation was enforced on October 1, 2019.
A sales tax holiday is an annual event during which the Maryland Comptroller allows certain items to be purchased sales-tax free at any participating retailer within the state. Maryland allows you to purchase the following items tax-free during their annual sales tax holidays: $100 in clothing and footwear in August; specific Energy Star qualified products in February. You can learn more about Maryland’s sales tax holiday program by visiting the Shop Maryland Tax Free Weekend website.
Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Maryland or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
Random Facts
- Baltimore City is the eighth largest seaport in the country.
- Maryland’s Mount Clare Station, built in Baltimore in 1830, was the first railroad station in the country.
- The Chesapeake Bay is the largest of more than 100 estuaries (a partially enclosed body of water where fresh water from rivers and streams mixes with salt water from the ocean) in the United States.
- MD joined the Union during the Civil War even though it was a slave state south of the Mason-Dixon line. Being a border state, it had major divisions in its support, even among family members. The state was a battleground where some of the most decisive battles were fought.
- In Sharpsburg, MD, the battle of Antietam was fought on September 17, 1862. The battle is considered the bloodiest battle of the American Civil War because an estimated 23,000 soldiers were killed, wounded or missing after 12 hours of savage combat. According to some sources, it is also the eighth-costliest land battle of the American Civil War.
- MD has the narrowest width of any U.S. state- less than 2 miles in the Hancock area.
- Maryland has the oldest continuously used capitol building in the country. It was established in 1772 and the distinction of being topped by the larges wooden dome in the United States constructed without nails. From November 26, 1783, to August 13, 1784, Annapolis was the capital of the United States.
