What is the main purpose of Maryland’s DAGR tax amendments?

The amendments aim to clarify and narrow the practical scope of the Digital Advertising Gross Revenue tax by formalizing prior administrative guidance and reducing uncertainty for taxpayers. Instead of introducing new rules, they provide clearer definitions and reinforce how the tax should be applied in practice.

What conditions must be met for advertising to be subject to the DAGR tax?

For advertising to fall within the taxable base, it must meet two cumulative criteria. It must be delivered programmatically, meaning through automated and data-driven processes, and it must be visually conveyed to users. Both conditions must be satisfied for the tax to apply.

How do the amendments address multiple-point-of-use (MPU) certificates?

The amendments provide additional clarification on MPU certificates, which are used when services are consumed across multiple jurisdictions. This guidance helps taxpayers determine how to properly allocate and report tax obligations in such scenarios.

What changes were made regarding bundled transactions?

The updated regulations clarify how bundled transactions should be treated when taxable and non-taxable elements are sold together. This helps businesses better understand when the entire bundle may be subject to tax and how to assess each component.

How do the amendments impact sales tax on technology services?

The amendments build on and formalize prior guidance related to technology services, including expanding the definition of a lease and clarifying the tax treatment of items sold alongside exempt services. This provides more certainty and reduces compliance risks for businesses operating in Maryland.

Maryland Clarifies Digital Ad Tax Scope and Definitions

Q: What types of advertising are considered “other comparable advertising services”?

The amended regulations clarify that this category includes traditional display advertising as well as more advanced formats such as programmatic video advertising and advertising delivered via multichannel video programming distributors like cable, satellite, and fiber-optic systems.

The Maryland Comptroller adopted amendments that clarify and narrow the practical scope of the state’s Digital Advertising Gross Revenue (DAGR) tax by reinforcing key interpretive positions that had previously appeared in administrative guidance. At the same time, the Comptroller amended the regulations on sales tax for technology services by building on and formalizing positions previously outlined in administrative guidance.

Key Clarifications Provided by Comptroller

Instead of introducing a new framework, Maryland regulators decided to provide greater clarity and consistency in areas that had created uncertainty for taxable persons. Therefore, the amended regulations confirm that two cumulative criteria must be met for advertising to fall within the taxable base. Advertising must be delivered programmatically, meaning through automated, data-driven processes, and it must be visually conveyed to users.

The amended regulations further clarify what qualifies as “other comparable advertising services,” a category that had previously been somewhat ambiguous. Examples of this category of services include traditional display advertising, as well as more advanced formats such as programmatic video advertising and advertising delivered through multichannel video programming distributors, including cable, satellite, and fiber-optic systems.

Furthermore, the Comptroller provided clarification on multiple-point-of-use (MPU) certificates, which are relevant when services are used across different jurisdictions. Additionally, amendments address the treatment of bundled transactions, where taxable and non-taxable elements are sold together, and expand the definition of a lease. Additional guidance is also provided for items sold in connection with exempt services, to help taxable persons determine when those items may be subject to tax.

Conclusion

The explanations and clarifications provided by the Maryland Comptroller through amended regulations provide greater clarity and practical guidance to taxable persons navigating both the DAGR tax and the sales tax on technology services. The combination of codifying prior administrative positions and elaborating on key concepts reduced interpretive ambiguity and compliance risk in Maryland.

Source: PwC