Avalara > Blog > Sales and Use Tax > Maryland expands economic nexus, requires marketplaces to collect tax for sellers

Maryland expands economic nexus, requires marketplaces to collect tax for sellers


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Maryland has required out-of-state sellers to collect and remit Maryland sales and use tax since October 1, 2018. Starting October 1, 2019, a new law broadens the remote seller collection obligation to tobacco taxes and requires marketplace facilitators to collect and remit tax on behalf of their sellers.

Economic nexus applies to tobacco taxes

States won the right to require out-of-state sellers to collect and remit sales tax on June 21, 2018, when the Supreme Court of the United States ruled a physical presence in a state isn’t the sole requisite for sales tax collection. Since then, more than 40 states have adopted sales tax economic nexus, which bases a sales/use tax collection obligation solely on a remote seller’s economic activity in a state (e.g., $100,000 in sales or 200 transactions).

Though centered on sales tax, the Supreme Court ruling was broad: All it did was determine that “physical presence is not necessary to create a substantial nexus.” Thus, states are likely to apply it broadly.

Washington already uses economic nexus to impose a business and occupation (B&O) tax obligation on remote sellers, and the Texas Comptroller of Public Accounts has said it will enforce economic nexus for franchise tax in the Lone Star State. Now Maryland will require out-of-state sellers with economic nexus in the state to pay the tobacco tax on pipe tobacco and certain premium cigars.

House Bill 1301 establishes a tobacco tax collection obligation on out-of-state sellers that sell, hold for sale, ship, or deliver premium cigars or pipe tobacco to consumers in the state if in the current or previous calendar year, they:

  • Have more than $100,000 in gross revenue from the sale of premium cigars or pipe tobacco in Maryland; or
  • Made at least 200 separate transactions of premium cigars or pipe tobacco into the state

Remote sellers of these products are required to pay the tobacco tax on pipe tobacco or premium cigars on which the tobacco tax hasn’t been paid.

In addition to expanding economic nexus to tobacco taxes as of October 1, 2019, Maryland is imposing a tax collection obligation on marketplace facilitators.

Marketplaces must collect tax on sales made through the platform

Effective October 1, 2019, marketplace facilitators that are required to collect Maryland sales tax (i.e., with a physical presence in Maryland or economic nexus with the state) are required to collect the applicable sales and use tax on sales made through the marketplace by third-party sellers (marketplace sellers). A remote marketplace seller isn’t required to obtain a sales tax license if the marketplace facilitator collects and remits the tax on its behalf.

A marketplace facilitator that makes its own sales (or those of an affiliate) in addition to facilitating sales for marketplace sellers is required to report those sales separately and therefore must have two separate sales tax licenses: one for its own sales and one for its marketplace sales.

The measure specifically excludes the following from the definition of “marketplace facilitator”:

  • Certain delivery service companies
  • Payment processors (e.g., debit card and credit card companies)
  • Peer-to-peer car sharing programs
  • Platforms/forums that advertise internet sales but don’t collect payments from buyers

Waiver allowed when marketplace seller is a publicly traded communications company

More than 25 states have adopted a similar sales tax collection requirement for marketplace facilitators. However, Maryland is the first to allow a waiver when certain publicly traded communications companies are involved.

To be eligible for the waiver:

  • The marketplace seller must be a communications company that’s either publicly traded or controlled by a publicly traded company;
  • The marketplace facilitator and the marketplace seller must have an agreement that the seller will collect and remit all applicable sales and use taxes; and
  • The marketplace seller must provide the facilitator with evidence that the seller is licensed to engage in the business of an out-of-state vendor or retail vendor in Maryland.

In the event the Maryland Comptroller authorizes such a waiver, the marketplace facilitator is relieved from liability for applicable sales and use taxes. Additional information on criteria for obtaining such a waiver will be forthcoming from the comptroller.

It will be interesting to see if other states follow Maryland’s lead on this, and single out communications companies.

The collection requirement for marketplace facilitators takes effect October 1, 2019, and may not be applied prior to that date. Furthermore, the Maryland Comptroller is prohibited from imposing a penalty on a marketplace for failure to comply with this requirement on or before January 1, 2020 — provided the marketplace facilitator can demonstrate “a hardship implementing the computer programs necessary to collect the sales and use tax.”

Learn more about economic nexus and tax collection requirements for marketplace facilitators in Avalara’s state-by-state guides. 


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Gail Cole
Avalara Author Gail Cole
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.