Understanding SaaS Taxability in Maryland

Is SaaS Taxable in Maryland?

Yes, generally, Saas is subject to Maryland’s 6% sales tax rate. However, there are are some significant key points for SaaS purchased or licensed solely for commercial purposes. Since 2022, Maryland’s guidance excludes certain computer software and software-as-a-service (SaaS) from taxation as digital products. The law, effective July 1, 2022, accomplishes this by amending the definition of “digital product”  to exclude certain types of enterprise-level computer software or SaaS from taxation. In addition, the law excludes certain digital products from taxation where the purchaser holds a copyright or intellectual interest and is used in commercial purposes. However, a new law, effective July 1, 2025, specifies that SaaS and other digital products purchased or licensed for commercial purposes are now subject to a reduced rate of 3%. Therefore, these transactions are no longer exempt and instead subject to a reduced rate, effective 7/1/25.

Distinction for B2B vs. B2C

The taxability of SaaS in Maryland depends on the intended use:

• Business Use: SaaS purchased or licensed solely for commercial purposes in an enterprise computer system is subject to a reduced sales and use tax rate.
• Personal Use: SaaS purchased for personal or non-commercial use remains subject to Maryland sales and use tax at the general rate.

Determining the Taxability of SaaS in Maryland

To determine if your SaaS product is taxable in Maryland:

• Assess the Purpose: Determine whether the SaaS is purchased for commercial or personal use.
• Evaluate the Delivery Method: Confirm that the software is delivered electronically and accessed remotely, aligning with the definition of a digital product.
• Consider the Nature of the Software: Ensure that the software is not customized, as custom software is generally exempt from sales and use tax in Maryland.

Nexus Thresholds for Maryland

Maryland enforces economic nexus, requiring out-of-state sellers to collect sales tax if they meet specific thresholds, such as $100,000 in gross sales or 200 separate retail sales within the state.

Sales Tax Compliance Checklist

To ensure compliance with Maryland tax regulations:

• Register for a Sales Tax Permit: Businesses with nexus in Maryland must register with the Maryland Comptroller’s Office to obtain a sales tax permit.
• Collect and Remit Sales Tax: Once registered, collect the appropriate sales tax on taxable transactions and remit the collected taxes to the state.
• File Regular Tax Returns: Depending on your sales volume, you may be required to file monthly, quarterly, or annual sales tax returns. Timely filing is crucial to avoid penalties.

Examples of Taxability of SaaS in Maryland

• Taxable:
  • Personal Use: An individual subscribes to a cloud-based accounting software for personal budgeting. This transaction is subject to Maryland general sales tax rate.
• Taxable at a reduced rate:
  • Business Use: A company subscribes to a cloud-based accounting software for its operations. This transaction is subject to the Maryland reduced sales tax rate.

Local Tax Considerations in Maryland

Maryland does not have local sales taxes; therefore, SaaS taxability is consistent statewide.

Penalties for Non-Compliance in Maryland

Non-compliance with Maryland tax laws can result in:

• Financial Penalties: Fines and interest on unpaid or late taxes.
• Legal Consequences: Potential audits and legal actions by the Maryland Comptroller’s Office.
• Reputational Damage: Negative impact on your business’s credibility and customer trust.

Additional Resources

For more information, refer to:

• Maryland Comptroller’s Office: Provides comprehensive guidance on sales tax regulations and compliance.
• For insights into SaaS taxability in Maryland, read this article we wrote.

As you know, these matters can get messy. You don’t have to go at it alone. Come to Miles Consulting for all your multi-state tax solutions.