Sales and Use Taxes in Maryland

April 13, 2006

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In Maryland a sales tax is imposed on a retail sale, including leases or rentals, of tangible personal property or a taxable service in the state. The use tax is imposed on the use of tangible personal property or a taxable service. You do not have to pay use tax if sales tax has already been paid.

Sales and use tax rate. The Maryland sales and use tax rate is 5 percent on the state level. Make sure you contact your local governments in Maryland because they are allowed to assess a local sales and use tax on certain qualified items and activities. The following services are considered to be taxable services:

fabrication, printing, or producing personal property by special order
commercial cleaning or laundry
cellular telephone or other mobile telecommunications services
900-type telecommunications services
custom calling services provided in connection with basic telephone services
telephone answering services
pay per view television services
credit reporting and security services
cleaning of commercial or industrial buildings

Tax exempt items. Maryland includes many specific items that are exempt from sales tax — for example, certain prescription medications are exempt. You'll want to check to see if you're exempt from the tax.

Responsibility for paying sales tax. In Maryland the purchaser must pay the sales and use tax to the vendor. If you are a vendor, you collect the tax as a trustee for the state and you must account for the amount collected. If you are a vendor, you do not have to collect the sales and use tax if:

the buyer provides you with an exemption certificate or
the buyer provides you with a properly signed resale certificate

Use tax. For a transaction to be subject to sales and use tax in Maryland, two items must be present. First, there must be a retail sale or a use in Maryland; and secondly, the object of the sale or use must be tangible personal property or a taxable service.

Responsibility for collecting use tax. In Maryland a buyer who does not pay the sales or use tax to the vendor must pay the sales and use tax that is due. This sales or use tax is paid with the return that covers the period in which the purchase was made.

Obtaining tax permits in Maryland. To obtain a vendor's license you must submit an application to the Comptroller for each place of business where you will sell tangible personal property or a taxable service. This sales tax license is valid indefinitely.

Leases. A lease of tangible personal property is considered a sale and, therefore, is subject to sales and use tax. Each lease payment period is considered a separate lease or sale and the tax applies to the entire lease payment for property acquired by lease.

The following discussions address additional sales and use tax issues that many small business owners face: