Sales tax on invoices in Maryland

In Maryland, you pay sales tax on the materials you buy for a real property project, and you charge your customer none when the work permanently improves the property. You charge tax when material you install stays personal property, on wall-to-wall carpet, and on the services Maryland lists as taxable, such as cleaning a commercial building.

Sales and use tax license, and who collects

The vendor collects Maryland sales and use tax from the buyer when the sale is made, whenever the price is paid. You get a permanent sales and use tax license through the Maryland Tax Connect portal’s combined registration application. If you regularly sell tangible personal property, such as material you install for a temporary purpose or wall-to-wall carpet, you need this license to use a resale certificate.

Real property work: tax on your materials, not your labor

The Comptroller’s tip for real property contractors says you pay the sales tax on building materials and supplies when you buy them for a real property project. You may buy materials tax-free on a resale certificate only if you intend to resell them as personal property. Construction materials, tools and equipment you buy out of state and bring into Maryland for use here are taxable too, but Maryland credits the sales tax you paid to the other state, up to the Maryland tax, so you owe only any difference.

Labor to install, erect, assemble or repair real property isn’t taxable, whether you state it separately or bill a lump sum. Labor to fabricate tangible personal property is taxable either way.

Real or personal property: the intention test

Whether material you install becomes part of the real property depends mainly on the intention of the person who installs or attaches it:

• Permanent improvement: material meant to permanently and substantially improve the land, buildings or other real property is real property. You pay the tax when you buy it, and no tax is charged to your customer. The Comptroller’s examples include built-in residential dishwashers and garbage disposals, kitchen cabinets (commercial or residential), fencing, landscaping, windows and doors, and vinyl, tile and laminate flooring.
• Temporary purpose: material installed for a temporary purpose stays personal property, such as cabinetry and counters used in a business, or modular office furnishings. You may buy it on a resale certificate, and you must charge your customer tax on the total charge for the item sold.
• Wall-to-wall carpet: Maryland law keeps carpet installed wall to wall as tangible personal property, whatever the purpose, method or permanency of the installation. You may buy it on a resale certificate, and you collect the tax from your customer.

When you install personal property, separately stated installation labor isn’t taxable; if the installation charge isn’t stated separately, the entire price, installation included, is taxable.

Nonprofit jobs yes, government jobs no

The exemption certificate of a Maryland private nonprofit charitable, educational or religious organization, volunteer fire, ambulance or rescue company or squad, or nonprofit cemetery lets you buy materials tax-free for work on its real property, if they’re incorporated into it. Give your supplier a written statement identifying the job and certifying that the materials are for incorporation into it. Materials for real property owned by governments, diplomatic embassies and credit unions are taxable when you buy them, whatever exemption certificate the owner holds.

Services: a listed set, and repairs of goods

Maryland taxes only the services its Tax-General Article lists. They include fabrication of goods by special order; cleaning of a commercial or industrial building, meaning floor, carpet, wall, window, ceiling and exterior cleaning and janitorial services; and security services, including security systems services. That cleaning definition reaches only commercial and industrial buildings.

For repairs of goods such as appliances, the Comptroller’s repair tip says lump-sum charges are exempt, but when you state repair labor and parts separately, the parts are taxable. If you offer “free installation” with a part you sell, tax is due on the part’s full price. Repairs of realty, such as a building, are exempt, including any separately stated charge for materials installed; you pay the tax on all the materials you buy for them.

Your invoice: a separate tax line when you charge tax

Show Maryland sales and use tax as a separate item on your invoice; without it, there’s no record that you collected it or that your customer paid it. You may absorb all or part of the tax and pay it for your customer, but you must still state it separately from the sales price at the time of sale, and your records must show which sales you absorbed it on.

Charge no tax on material that permanently improves real property, on labor to install or repair real property, on realty repairs or on lump-sum repairs of goods; an invoice with only those needs no tax line.

Security systems: installation isn’t a taxable service

Monitoring a security system, residential or commercial, is a taxable security service in Maryland, but installing one in commercial or residential property isn’t, even if you’ll monitor it later: it improves the realty, so you pay tax on the materials you install. Equipment that runs or monitors the system, or works on its own as a standalone electronic device, and is normally treated as tangible personal property, such as computers, cameras and monitors, doesn’t become part of the realty: state its charge separately and charge the tax on it.