Maryland Internet Sales Tax

Learn about the Internet sales tax rules for Maryland.

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If you are selling goods or products online and some of your customers are located in Maryland, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level. 

The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.

Below is an article on the current rules on Internet sales tax in Maryland. A new federal law would affect all state Internet sales tax laws so be sure to check for updates in this area.

The General Rule: Physical Presence in the State

The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales. The decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:

  • having a warehouse in the state
  • having a store in the state
  • having an office in the state, or
  • having a sales representative in the state.

For guidance on how physical presence is determined specifically under Maryland law, consult of Section 11-701(b)(2) of the Maryland Code, which defines the phrase “Engage in the business of an out-of-state vendor.” (Note: Marylands’s statutes are available online through a web portal maintained by a private company, LexisNexis; it is not possible to provide direct links to individual sections of the Code in this website.) Section of the Code of Maryland Regulations (COMAR) contains essentially the same information.

As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.

A Note on “Nexus”

In its Quill decision, the United States Supreme Court discusses not only physical presence, but also several types of potential “nexus” between a business and a state, including one type based on the Due Process Clause of the Constitution and another type based on the Commerce Clause of the Constitution. The type of “nexus” (or connection) the Supreme Court ultimately found relevant for mail-order businesses was the Commerce Clause version, which, for all practical purposes, is physical presence.

While Maryland’s sales and use tax statute itself does not use the term nexus, the Comptroller of Maryland does use the term in providing guidance to out-of-state vendors regarding collection of sales tax. More particularly, the Office of the Comptroller takes pains to be clear that “presence” need not be “substantial,” but rather, only something more than a “slightest presence.” The legal implications of this guidance are not clear. Separate guidance, also from the Comptroller, regarding the state’s use tax, which is a tax complementary to the sales tax, and is to be paid by consumers in situations where no sales tax is collected (see below), states that businesses that do not have a “physical location” or “deliver services” in Maryland are not required to collect sales tax.


Example 1: You are operating solely out of a warehouse in Las Vegas, Nevada and make a sale to a customer in Glen Burnie, Maryland—a state where your business has no physical presence: You are not required to collect sales tax from the Glen Burnie customer.

Example 2: You are operating solely out of an office in Germantown, Maryland and make a sale to a customer in Columbia, Maryland: You are required to collect sales tax from the Columbia customer.

Example 3: After several years of operating solely out of a warehouse in Las Vegas, Nevada, you open a one-room satellite office just outside of Baltimore, Maryland—a state where previously you had no physical presence. A day later, you make a sale to a customer in Silver Spring, Maryland: You are required to collect sales tax from the Silver Spring customer.

Non-Taxable Items

Some items sold via the Internet to Maryland customers may be exempt from sales tax under Maryland law. For example, Section 11-205 of the Maryland Code states that Maryland State flags, United States flags, and certain other flags are exempt from sales tax. For further information on exemptions, check Sections 11-201 through 11-231 of the Maryland Code (accessible through the LexisNexis web portal.)

Maryland also has an annual tax-free week for certain clothing and footwear purchases starting on the second Sunday in August. For more information, see COMAR Section

The Customer’s Responsibility

In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” The Comptroller of Maryland provides guidance on the use tax which specifically mentions purchases made “in person, over the phone, or on the Internet.”

Final Words

While you might not know it from looking solely at Maryland’s sales tax statute, the issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states and at the federal level. However, at this time Maryland has not enacted any law that would require out-of-state retailers to collect sales tax from Maryland customers.

In Maryland, the physical-presence rule applies for Internet retailers. However, because the issue is hotly debated in various quarters, you should consider checking in periodically with the Comptroller of Maryland to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.

September 2012

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