Maryland Sales & Use Tax: A Guide for Frederick Business Owners

Maryland Sales Tax Basics

Maryland imposes a 6% sales and use tax on the retail sale of most tangible personal property and certain services. Unlike some states, Maryland does not allow counties or municipalities to add their own sales tax on top of the state rate — the 6% rate is uniform statewide. Frederick County businesses charge the same rate as businesses in Baltimore City or Montgomery County.

If your business sells taxable goods or services in Maryland, you are required to collect sales tax from your customers at the point of sale, hold it in trust, and remit it to the Maryland Comptroller on a regular filing schedule. The tax belongs to the state from the moment of collection — it is not your money to use. For a complete overview of Maryland's business tax obligations, see our Maryland Tax Guide.

Who Needs a Maryland Sales Tax License?

Any business that sells taxable goods or services in Maryland must register with the Comptroller and obtain a Maryland Sales and Use Tax License before making its first taxable sale. This includes:

• Retailers selling tangible personal property — clothing, furniture, electronics, sporting goods, tools, auto parts
• Restaurants and food service businesses — prepared food and beverages are taxable in Maryland
• Contractors — who purchase materials incorporated into real property (use tax may apply)
• Digital goods and software sellers — certain digital products are taxable in Maryland
• Telecommunications providers — telephone, cable, and internet services are subject to sales tax
• Out-of-state businesses with Maryland nexus — remote sellers with over $100,000 in Maryland sales or 200 or more Maryland transactions in a year must register and collect

The Sales and Use Tax License is obtained through the Maryland Comptroller's online registration system and is free to obtain. Once registered, you are assigned a filing frequency based on your anticipated sales volume.

What Is Taxable in Maryland?

Maryland taxes the retail sale of most tangible personal property. Common taxable items include:

• Retail merchandise of all kinds — clothing, electronics, furniture, tools, auto parts
• Prepared food and beverages sold at restaurants, delis, and food trucks
• Alcoholic beverages
• Digital products — software, digital downloads, streaming services in some cases
• Telecommunications services
• Admission charges to amusement parks, concerts, and certain events
• Rental of tangible personal property — equipment rentals, vehicle rentals

What Is Exempt from Maryland Sales Tax?

Maryland provides a number of important exemptions. The most significant for Frederick County businesses:

• Groceries — most food sold for home preparation is exempt. This does not include prepared food sold ready to eat.
• Prescription drugs and most medical equipment — exempt from Maryland sales tax
• Agricultural equipment and supplies — farm machinery, feed, seed, and fertilizer used in agricultural production are exempt. This is significant for Frederick County farmers.
• Resale purchases — goods purchased for resale are exempt if the buyer provides a valid Maryland resale certificate
• Manufacturing machinery and equipment — equipment used directly in manufacturing is generally exempt
• Most professional services — accounting, legal, medical, and most other professional services are not subject to Maryland sales tax
• Real property construction services — labor charges for construction, repair, and improvement of real property are generally exempt, though materials may be taxable

Maryland Sales Tax Filing Frequency

The Comptroller assigns your filing frequency based on your monthly tax collections. Once registered, your frequency is reviewed annually and can change as your business grows:

Monthly filers with over $100 in monthly tax due must file electronically through Maryland's bFile system. Electronic filing is free and provides immediate confirmation. Returns must be filed even in months with zero sales — a zero return is still required to keep your account active.

How to File and Pay Maryland Sales Tax

Maryland sales tax returns are filed through the bFile system at interactive.marylandtaxes.gov/business. The process for each filing period:

1. Log in to bFile with your Maryland sales tax account number and PIN
2. Enter total gross sales for the period
3. Enter exempt sales separately — groceries, resale, agricultural exemptions
4. Maryland calculates taxable sales and the 6% tax due
5. Submit payment via electronic funds transfer from your bank account
6. Save the confirmation number for your records

Businesses that file and pay on time receive a vendor discount — Maryland allows you to keep a small percentage of the tax collected as compensation for the cost of collecting and remitting. The discount is 0.5% of the first $6,000 of tax due per period, decreasing for larger amounts.

---

Maryland Use Tax — The Hidden Obligation

Use tax is the companion to sales tax — and it is one of the most commonly overlooked obligations for Maryland businesses. If you purchase taxable goods or services from an out-of-state vendor who does not collect Maryland sales tax, you owe Maryland Use Tax on those purchases at the same 6% rate.

Common use tax situations for Frederick County businesses:

• Purchasing equipment or supplies online from Amazon Business, Grainger, or other out-of-state retailers who don't collect Maryland tax
• Ordering promotional materials, signage, or printed goods from out-of-state printers
• Purchasing software or digital tools from out-of-state vendors
• Buying materials or equipment at trade shows held outside Maryland

Sales Tax for Contractors in Maryland

Maryland's sales tax treatment of contractors deserves special attention because it differs from many other states. In Maryland, a contractor who purchases materials and incorporates them into real property is treated as the consumer of those materials — not a reseller. This means:

• Contractors generally cannot use a resale certificate to purchase materials tax-free
• The contractor pays sales tax to the supplier when buying materials
• The contractor does not charge sales tax on the labor portion of the contract
• The total contract price billed to the customer (labor plus materials) is not subject to sales tax

The practical result is that Maryland contractors pay sales tax on materials at purchase and pass that cost into their contract price. The customer does not pay a separate sales tax on the contractor's invoice. This is the opposite of how retail sales work and confuses many contractors who operate in multiple states.

For more on contractor-specific tax issues, see our guide on deductions contractors always miss.

Economic Nexus — Out-of-State Sellers and Maryland

Since the 2018 Supreme Court decision in South Dakota v. Wayfair, Maryland — like most states — requires out-of-state sellers to collect and remit Maryland sales tax if they exceed the economic nexus threshold. For Maryland, that threshold is:

• $100,000 or more in gross sales into Maryland in the current or prior calendar year, OR
• 200 or more separate transactions into Maryland in the current or prior calendar year

If you sell products online and ship to Maryland customers, you need to track your Maryland sales carefully. Exceeding either threshold requires immediate registration with the Comptroller and collection of sales tax on all future Maryland sales.

Penalties for Non-Compliance

Maryland takes sales tax compliance seriously. The penalties for failure to collect, report, or remit sales tax include:

• Failure to file: 10% of the tax due, minimum $25
• Failure to pay: 10% of the unpaid tax
• Interest: charged on unpaid tax from the due date at the Comptroller's annual rate
• Fraud or willful evasion: penalties up to 100% of the tax due, plus potential criminal prosecution

Maryland can also revoke your Sales and Use Tax License for repeated non-compliance, which prevents you from legally making taxable sales in the state.

Frequently Asked Questions

I sell services, not products. Do I need to collect Maryland sales tax?

Most professional services in Maryland are not subject to sales tax — including accounting, legal, consulting, medical, and most personal services. However, some services are taxable, including telecommunications, certain digital services, and services that involve the transfer of tangible personal property. If you're unsure whether your specific service is taxable, we can review your situation.

I sell on Etsy and ship to Maryland customers. Do I need to collect sales tax?

Etsy is a marketplace facilitator and is required to collect and remit Maryland sales tax on your behalf for sales made through their platform. You generally do not need to collect separately for Etsy sales. However, if you sell through your own website or at craft fairs in Maryland, you may need your own Maryland sales tax license depending on your volume.

How long does Maryland have to audit my sales tax returns?

Maryland generally has four years from the due date of a return to assess additional sales tax through an audit. If fraud is involved, there is no statute of limitations. Audits can cover all open years simultaneously and frequently uncover use tax liability in addition to sales tax issues.

Can I charge my customers sales tax on shipping charges?

In Maryland, shipping and handling charges are generally taxable when the underlying sale is taxable and the charges are not separately stated. If you ship taxable goods to Maryland customers, include the shipping charge in your taxable sales base unless it is separately invoiced and the customer has the option to arrange their own shipping.