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the definition of ‘tangible personal which binds states to following the SST
property.’”1 Unfortunately, prior to the definitions where applicable but allows Maryland’s
Colorado legislation and a correspond- states to tax (or exempt) other goods
ing regulation2 that had been adopted and services through separate, state- interpretation of a
earlier in the year, there was no clear specific definitions. ‘digital good’ may
guidance or support for taxpayers to rely
on when making taxability decisions, Maryland’s unique definition be viewed as one of
other than experience or anecdotal re- of digital goods raises the most extensive
ports that the department was taking a questions iterations of such base
taxable position on audits. Rather than following the approaches of
Foreseeing the confusion that the other states that tax digital goods, Mary- expansion efforts in
taxation of digital goods could bring, land defined digital goods in its own recent years.
the Streamlined Sales Tax (SST) proj- manner. Rather than specifically iden-
ect sought to bring simplification and tifying in its statutes what constitutes a
harmonization to sales and use taxes, digital product subject to sales and use
and to digital commerce specifically, tax (the SST approach), Maryland’s stat-
when in 2007 it provided “specified ute broadly defined a “digital product” as online educational services (including
digital products” definitions and rules a product that is obtained electronically those from accredited universities),
for adoption by member states. For SST by the buyer or delivered by means other satellite radio, and various advertising
purposes, “specified digital products” than tangible storage media through services. This expansive interpretation
means electronically transferred (other the use of technology having electrical, of digital goods or digital code turned
than via tangible storage media) “digi- digital, magnetic, wireless, optical, elec- Maryland from a state that did not tax
tal audio works,” “digital audio-visual tromagnetic, or similar capabilities. The digital products (and many services)
works,” or “digital books.” Computer statute includes a list of certain digital into the most assertive state in taxing
software, which is classified as tangible products but does not limit taxation to digital goods.
personal property, and telecommunica- those listed products.3 In response to the reaction from
tions, which is classified as a service, When the law was first enacted with the business community, the Maryland
are excluded from the “specified digital an effective date in 30 days, taxpayers General Assembly adopted further leg-
products” definition. Twenty-four states and practitioners assumed that Mary- islation to make two retroactive changes
have passed conforming legislation land would be taxing items in a manner to the new digital tax that narrowed the
adopting these definitions when they similar to other states that had expanded comptroller’s definition of digital goods.5
choose to tax or exempt such products in taxation to digital goods. For example, First, it enacted exclusions from the
their state’s tax codes. most taxpayers and tax engine software definition of a “digital product” for:
Observation: SST member states providers assumed that cloud software ■ Prerecorded or live instruction
may tax digital products more broadly, and related services were not included. by a public, private, or parochial
but they must do so outside of the SST However, three days before the elementary or secondary school or a
definitions. For example, Washington effective date of the legislation, the public or private institution of higher
state imposes sales and use tax on these Comptroller’s Office issued Business education;
digital categories but also imposes sales Tax Tip #29,4 nonbinding guidance to ■ Live instruction in a skill or profes-
tax on a category not defined by SST, taxpayers with an expansive list of items sion in a buyer’s current or prospec-
“digital automated services.” This is considered to be taxable digital products. tive business, occupation, or trade if
consistent with the SST framework, These included cloud service offerings, the instruction features an interactive

1. Colorado H.B. 1312, §1(c)(II), enacted June 23, 2021. See PwC’s Insight, 4. Maryland Comptroller’s Office, Business Tax Tip #29, “Sales of Digital Prod-
“Colorado Enacts Digital Tax, ‘Tax Haven,’ and Passthrough Entity Tax Mea- ucts and Digital Codes” (March 11, 2021). See PwC’s Insight, “Maryland
sures” (July 1, 2021), for details. Interprets New Tax on Digital Products; Provides Filing, Payment Extension”
2. Colorado Rule 39-26-102(15), 1 Colo. Code Regs. §201-4, published Jan. (March 16, 2021), for details.
10, 2021. See PwC’s Insight, “Colorado Rule Applies Sales Tax to Digital 5. Maryland S.B. 787, enacted May 12, 2021. See PwC’s Insight, “Maryland
Media, Streaming Services” (January 2021), for details. Legislature Approves Digital Ad Tax Delay, Digital Products Amendments”
3. Maryland H.B. 932, enacted Feb. 12, 2021. See PwC’s Insight, “Maryland (April 13, 2021), for details.
Expands Sales Tax Base to Include Digital Products and Codes” (March 1,
2021), for details.

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