March 17, 2021

Digital Products, Canned Software and SaaS Now Subject to Maryland Sales and Use Tax

By John Bonk, National State & Local Tax Leader & Alex Toback, Staff Accountant, Tax & Business Services

Digital Products, Canned Software and SaaS Now Subject to Maryland Sales and Use Tax State & Local Tax


On March 9, 2021, the Maryland Comptroller of Treasury issued guidance stating that sales and use tax will apply to digital products effective March 14, 2021.


A “digital product” is defined as a product that is obtained by the buyer electronically or is delivered by means other than tangible storage media using technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

A “digital code” is defined as code that may be obtained by any means including (1) in a tangible form, such as a card, or (2) through email, and provides a buyer with a right to obtain one or more digital products. The guidance further elaborates that “any means” includes the following:

  • Electronically though computer-mediated communications such as email, text, or message; or
  • Tangible form such as a card, imprint on a product or other storage product.

The new law specifically notes that “digital code” does not include a gift certificate or gift card with a monetary value that may be redeemable for an item other than a digital product.

Examples of Digital Products

The guidance provides a list of taxable digital products subject to sales and use tax if obtained or delivered by electronic means, including but not limited to the following:

  • A book or e-book;
  • Magazines, periodicals, or any other publication;
  • Access to or use of video or online games;
  • Customer list, mailing lists, medical records, and similar products; and
  • Streaming audio and video Services.

The Maryland Comptroller further stated in the guidance that this will include sales of canned or commercial off-the-shelf (COTS) software that is delivered electronically, as well as software as a service (SaaS).


The following types of transactions would still be exempt from sales and use tax:

  • Sale of certain custom computer software services.
  • Reselling the digital product in the same form that the buyer receives or is to receive.
  • Incorporating the digital product into another digital product intended for resale.
  • Transferring the digital product to a buyer in the form of a taxable service.


The retail sale of a digital code or digital product shall be presumed to be made in the state in which the “customer tax address” is located. The guidance further elaborates on how to determine the customer tax address.

Taxpayers who previously performed a sales tax analysis should revisit those conclusions for Maryland, as those conclusions may have changed. For further assistance, please contact your Marcum State and Local Tax professional to address any questions regarding the taxability of digital products in Maryland.

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