Source: RSM US LLP.   

ARTICLE | June 01, 2021

In a May 28, 2021 letter to the legislature, Maryland Gov. Larry Hogan announced his intent to allow Senate Bill 787 to became law without his signature. The bill provides a postponement of the nation’s first digital advertising tax to 2022 and makes clarifications and additions to the state’s recent expansion of sales taxes to certain digital products. 

Digital advertising tax amendments

Recall that the digital advertising tax is imposed on entities with at least $100,000,000 of global annual gross revenues and with at least $1,000,000 of digital advertising revenue derived from Maryland. In February, the Maryland General Assembly overrode Hogan’s 2020 veto of the tax allowing the tax to become law for the 2021 calendar year. Senate Bill 787 postpones the effective date of the tax to Jan. 1, 2022. 

In addition to the postponement, Senate Bill 787 excludes broadcast and news media entities from the tax. A ‘broadcast entity’ is defined as an entity that is primarily engaged in the business of operating a broadcast television or radio show. ‘News media entities’ are defined as engaged primarily in the business of newsgathering, reporting or publishing articles or commentary about news, events and other matters of public interest, but excludes entities that are primarily an aggregator of third-party content. 

Senate Bill 787 also explicitly prohibits an entity subject to the tax from directly passing it through to a customer purchasing the digital advertising services through a separate fee, surcharge or line-item. 

The digital advertising tax has been controversial from its first proposal. Soon after the veto override, a complaint was filed in federal court requesting an injunction of the tax. The complaint alleges the digital ad tax is discriminatory under the Internet Tax Freedom Act and otherwise unconstitutional. A similar complaint has been filed in Maryland state court. The litigation is ongoing and an injunction has not yet been granted as of the date of this article by either court.  

The postponement of the tax will allow the litigation to progress while giving the state an opportunity to promulgate relevant regulations addressing issues such as determining the state from which revenues from digital advertising services are derived. The Comptroller has recently advised that guidance will be published and regulations adopted. 

Currently as scheduled, taxpayers subject to the digital advertising tax must file a declaration of estimated tax on or before April 15, 2022 and make quarterly estimated payments for 2022 revenues on April 15, June 15, Sept. 15 and Dec. 15. The first annual return will be due April 15, 2023 for 2022 revenues. 

Digital products tax and amendments

In February, the legislature also overrode Gov. Hogan’s 2020 veto of House Bill 932, expanding the sales tax to digital products and digital codes, effective March 14, 2021. As a result of the override, the Maryland Comptroller’s office published Business Tax Tip #29, Sales of Digital Products and Digital Code discussing the taxation of various items delivered electronically including:

  • Books, e-books, newspapers and magazines;
  • Electronically delivered software;
  • Software as a Service (SaaS);
  • Charges for viewing or attending continuing education classes, seminars or conferences even if sold by a non-profit or tax-exempt organization; and
  • Prerecorded or live music, performances, audio books and live speeches including commentaries, dissertations and lectures.

Subsequently, the Comptroller’s office published bulletin 21-1 Application of Sales and Use Tax to Digital Products and Digital Codes, which, along with Business Tax Tip #29, describe concerns about the taxability of online classes and other digital products. The bulletin explained that the Comptroller’s office would be ready to process any refund claims as appropriate if subsequent legislation was enacted making clarifications to the taxability of those items. 

Senate Bill 787 provides that necessary clarification. Specifically regarding online classes, the bill excludes from the tax 1) prerecorded or live instruction by a public or private school or institution of higher education, 2) certain live instruction in a skill or profession, 3) certain live seminars, discussions or similar events and 4) professional services obtained electronically. 

The bill also includes additions and revisions related to ‘digital code’ and ‘digital product’ references throughout the sales and use tax code providing clarification on the application of the tax. For example, references to digital codes and products are included in the marketplace facilitator provisions and are included in certain exemption provisions. 

Taxpayers making sales of digital products in Maryland should be aware of the depth and breadth of these recent clarifications and should anticipate additional guidance from the Comptroller consistent with the amended law. 

This article was written by David Brunori, Mo Bell-Jacobs, Erica Cline, Brian Kirkell and originally appeared on Jun 01, 2021.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.