What is Nexus?You'll need to collect sales tax in Maryland if you have nexus there. There are two main ways that sellers can be tied to a state when it comes to nexus: physical, or economic.
Physical nexus means having enough tangible presence, or activity in a state to merit paying sales tax in that state.
Economic nexus means passing a states' economic threshold, for total revenue, or the number of transactions in that state.
Calculating Nexus in Maryland
This happens when your business has a real, physical footprint in the state. This could be through:
- A store, office, or warehouse
- Keeping stock or using a distribution center
- Having sales staff or agents around
- Often doing face-to-face sales or services in Maryland
If your business is physically in Maryland, you probably need to collect and send sales tax for sales within the state.
You get economic nexus if your business has a big economic impact in Maryland, even without being physically there. In Maryland, you hit economic nexus if in the last or current year:
- You make more than $100,000 from selling to Maryland customers, or
- You sell to Maryland customers in 200 or more separate deals
- A parent company, subsidiary, or related business in the state
- An agent or rep sending customers your way
If your business is linked this way in Maryland, you might need to handle sales tax for sales in the state.
This comes into play when an out-of-state seller teams up with a Maryland-based partner to send customers through a web link or online ad. If your sales from these referrals go over $10,000 in the last four quarters, you need to collect and send sales tax in Maryland.
Marketplace nexus is when a platform like Amazon or eBay helps sell a retailer's products to Maryland customers. Usually, the platform takes care of the sales tax for the retailer.
Maryland exempts tax on oyster shells. It’s shucking taxes for seafood lovers.
Sales Tax Registration in Maryland
How to Get Your Maryland Sales Tax Permit
To smoothly navigate Maryland's sales tax waters, here's how you register for a sales tax license:
- Prepare Your Information: Before diving into registration, make sure you have all the necessary details at hand:
- Business name and address
- Legal structure (like sole proprietorship, partnership, corporation, etc.)
- Federal Tax ID Number (EIN), or your Social Security Number if you're a sole proprietor
- Personal details of all owners, partners, or corporate officers
- Your business's North American Industry Classification System (NAICS) code
- Visit the Maryland Comptroller's Online Service Center: Start the registration process online at the Maryland Comptroller's Online Service Center.
- Account Creation and Login: If you're new, create an account. If you're returning, just log in.
- Fill Out the Combined Registration Application (CRA): Once logged in, choose "Register a New Business" and complete the CRA. This form will ask for the information you gathered earlier, plus details about your business activities, estimated taxable sales, and more.
- Submit Your Application: Double-check your application for accuracy and submit it online. You'll get a confirmation number once it's in.
- Wait for Your Sales Tax License: After approval, your Maryland sales tax license will be mailed to you, usually within 4-6 weeks. Plan accordingly!
Cost of Registering for a Maryland Sales Tax License
Here's some good news: Registering for a Maryland sales tax license won't cost you a dime. That makes your Maryland tax journey a bit easier.
Federal Tax ID for Maryland Sales Tax License
Yes, for a Maryland sales tax license, you generally need a Federal Tax ID Number (EIN). However, if you're a sole proprietor without employees, your Social Security Number will do the trick.
Other Maryland Registrations to Consider
Depending on what your business does, you might need to sign up with other Maryland agencies:
- Maryland Department of Assessments and Taxation: Necessary if you're setting up a corporation, LLC, or partnership.
- Maryland Department of Labor: Required if you have employees, for things like unemployment insurance.
- Local City or County Offices: Check with local authorities as some places need you to have business licenses or permits.
Guide to collecting sales tax in Maryland
Is Maryland an Origin or Destination Sales Tax State?
Maryland uses destination-based sales tax. This means the sales tax is based on where the buyer gets the item or service, not where you're selling from. You'll need to figure out the right sales tax rate for each sale, depending on the buyer's location. You might want to use tax software or tools from the Maryland Comptroller's Office to help with this.
What Sales are Subject to Sales Tax in Maryland?
In Maryland, sales tax usually applies to physical items and some services. Here's what typically gets taxed:
- Retail sales of physical items like clothes, electronics, and furniture
- Prepared food and drinks
- Digital products like e-books, music downloads, and streaming services
- Renting out physical items
- Some services, like commercial cleaning, security, and telecommunication
Is Software as a Service (SaaS) Taxed in Maryland?
For Software as a Service (SaaS), Maryland generally doesn't charge sales tax. This is true as long as the software is used remotely and not installed on a device.
What is Exempt from Marylandne Sales Tax?
Maryland has a bunch of sales tax exemptions, like:
- Prescription drugs and medical equipment
- Groceries and unprepared food
- Agricultural supplies and equipment
- Manufacturing machinery and equipment
- Sales to non-profits, governments, and schools
Who is Eligible for Maryland Sales Tax Exemptions?
To get a Maryland sales tax exemption, buyers usually need to be:
- Non-profits with a valid Maryland sales tax exemption certificate
- Government entities, like federal, state, or local governments
- Schools and educational institutions
- Buyers purchasing items for resale with a valid Maryland resale certificate
What To Do If Your Customer is Exempt from Sales Tax in Maryland?
If a customer is exempt from sales tax in Maryland, you should:
- Get a completed Maryland sales tax exemption certificate from them
- Keep this certificate for at least four years for audit purposes
- Don't charge sales tax on their exempt purchases
- Always check the certificate is valid and filled out correctly before accepting it
What if You Lose a Maryland Sales Tax Exemption Certificate?
If you lose a Maryland sales tax exemption certificate, you could be on the hook for the sales tax if audited. To avoid this, keep your records tidy and ask for a new certificate from your customer if the original is lost or damaged.
Prepared crabmeat is taxed, but live crabs are not. In other words, Maryland crabs are subject to a special tax-claw-s.
Steps for Filing a Maryland Sales Tax Return
What If a Filing Date Falls on a Weekend or Holiday?
Don't worry if a Maryland sales tax filing date lands on a weekend or holiday. You get to submit your return on the next business day.
How to File a Maryland Sales Tax Return
Filing your Maryland sales tax return is a breeze. Just follow these steps:
- Figure Out Your Taxable Sales: Check your sales records for the filing period. Find out the total taxable sales and the amount of sales tax you collected.
- Go to the Maryland Comptroller's Online Service Center: This is where you'll file your sales tax return online.
- Log In or Create an Account: New users need to make an account, while returning users can just log in.
- Fill Out the Sales Tax Return Form: Once you're in, pick the "File Sales and Use Tax Return" option. You'll enter your sales and tax info, along with any deductions or exemptions.
- Review and Submit Your Return: Make sure everything's correct, then submit your return online. You'll get a confirmation number once it's done.
- Pay What You Owe: If you need to pay sales tax, you can do it online right there. They accept electronic checks, credit cards, or debit cards.
Filing online is fast, reduces errors, and confirms your submission immediately, making it a smooth sailing process.
Penalties for Late Filing in Maryland
In the choppy sea of sales tax, watch out for these penalties:
- Late Filing: 10% of the tax due each month, capping at 25%.
- Late Payment: 10% of the tax due.
- Interest: 1% per month on any unpaid balance.
Sales Tax Incentives in Maryland
Maryland offers incentives to encourage on-time filing and payment:
Vendor Credit: Monthly and quarterly filers who file and pay on time can get a credit of 1.2% on the first $6,000 collected and 0.9% on any additional amount.
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