Maryland’s Digital Sales Tax Clears Legislature

March 19, 2020, 5:33 PM

Downloading that new audiobook or streaming your favorite Netflix show could cost a little more if you’re in Maryland.

With the clock ticking down toward a coronavirus-induced legislative shutdown Thursday, Maryland lawmakers on Wednesday night pushed through a 6% tax on sales of digital goods. The bill (H.B. 932) passed the House of Delegates with an 89 to 45 vote, after amendments in the state senate a day before. Next, it heads to the desk of Gov. Larry Hogan (R).

The bill expands Maryland’s definition of the state’s sales tax to include electronically transferable goods and services such as e-books, music videos, and online newspapers—joining more than 20 states that already impose a digital tax.

Some of those states have been slow to respond with guidance on how to define certain digital sales transactions, said Jeff Friedman, a partner at Eversheds Sutherland’s Washington D.C. office.

One of the questions Maryland will have to figure out is how it determines the point of purchase in a business-to-business setting, where the sale location is different from the location of use, Friedman told Bloomberg Tax during a phone interview on March 19.

“The Maryland comptroller needs to fill in some of the gaps,” he said. “It’s not so much if you’re buying a movie to watch in your house, but if you’re using a mobile device and you may have more than one place of location.”

The bill applies the tax when a Maryland address is the “primary use location” of the product—a definition that will likely warrant clarification, he said. Friedman called the approach “generally in line” with most other states that tax digital goods.

It’s one of several tax hikes introduced to pay for The Blueprint for Maryland’s Future—a plan for funding education in Maryland. In the wake of the Covid-19 fallout and the revenue shortages to which it will likely give rise, the legislature’s appetite for a tax expansion is all that much greater, Friedman said.

“The state’s going to need additional revenue to deal with the emergencies going on, but at the same time it’s going to put a lot of pressure on the comptroller’s office,” Friedman.

The legislature also pushed through a tax on digital advertising. Its loose definition could create difficult questions for Comptroller Peter Franchot, Ulrik Boesen, a senior analyst at the Tax Foundation told Bloomberg Tax.

“The fact that the Maryland legislature is dumping these tax proposals on them at this time of crisis is really something to be upset about,” Friedman said. Sudden changes to the tax code are likely not at the forefront of people’s minds as they cope with the pandemic, he said.

To contact the reporter on this story: Sam McQuillan in Washington at smcquillan@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com

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