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STATE & LOCAL TAXES
Maryland breaks new ground
in taxing digital realm
Editor On Feb. 12, 2021, Maryland’s Gen- in international corporate income
Bridget McCann, CPA eral Assembly enacted two bills over tax rules.
the veto of Gov. Larry Hogan that This column begins by discussing
Authors: make major changes in the state’s Maryland’s sales tax on digital prod-
Jennifer W. Jensen, CPA tax code. One is a sales tax on digital ucts and then focuses on the digital
Ferdinand Hogroian, J.D. products and the other is a digital advertising tax.
Timothy G. Gorton, J.D. advertising tax.
The first bill, H.B. 932, expands Historical taxation of digital
the existing sales and use tax base to products
include “digital products,” effective Traditionally, states imposed taxes on
March 14, 2021. The second bill, sales of tangible personal property and
H.B. 732, establishes a new digital specifically enumerated services. In the
advertising gross revenue tax — the past, most items that are now delivered
first in any state. The effective date digitally were transferred via tangible
subsequently was delayed from 2021 medium (e.g., compact disc). However,
Maryland’s new until 2022. The digital advertising as more products and services began
tax applies to annual gross revenue
to be delivered digitally rather than in
sales tax regime derived from digital advertising in tangible format, some states looked for
expansively taxes Maryland and is imposed at scaled ways to tax these digital versions in order
digital products, and rates between 2.5% and 10%. to protect their tax bases. For example,
some states pursued taxation of digital
The two bills reflect separate and
its digital advertising distinct trends in state taxation of products if they were the “digital equiva-
tax is the first of the digital economy, and each raises lent” of tangible personal property.
Colorado is a recent example fol-
significant compliance issues for
its kind. businesses. While the sales tax on lowing a long line of states taking this
digital products reflects a continu- approach. Colorado legislation enacted
ing trend of state consumption tax last year includes “digital goods” within
base expansion in the digital arena, the definition of “tangible personal
Maryland’s interpretation of a “digi- property” and provides that “the method
tal good” may be viewed as one of of delivery does not impact the taxability
the most extensive iterations of such of a sale of tangible personal property.”
base expansion efforts in recent years. This includes compact disc, electronic
Additionally, the digital advertising download, and internet streaming. The
tax is a new state gross revenue tax legislation states it “codifies the Depart- PHOTO BY NIROSHAN86/ISTOCK
regime that seems to follow foreign ment of Revenue’s long-standing treat-
digital service taxes (DSTs) enacted ment of digital goods, as reflected in its
to address perceived shortcomings rule, and neither expands nor contracts
38 March 2022 The Tax Adviser
