Knowing what items are exempt from sales tax in Maryland saves money and prevents compliance headaches. You might be budgeting household expenses or configuring checkout systems, so understanding Maryland’s exemptions affects your bottom line.
Maryland’s 6% state sales tax applies to most retail purchases, but dozens of categories qualify for exemptions. From groceries and prescription medications to manufacturing equipment and solar panels, these exemptions reduce costs for residents while supporting public health, education, and economic development.
Misclassifying exempt items creates problems on both sides of the register. Consumers overpay when retailers incorrectly charge tax. Businesses face audits and penalties when software misconfiguration taxes items that shouldn’t be. That’s where Hands Off Sales Tax (HOST) provides value, ensuring your calculations reflect Maryland’s actual exemption rules, not guesswork.
Maryland Sales Tax: The Foundation
Maryland imposes a 6% state sales tax on most tangible personal property and certain services. Unlike many states, Maryland has no local option sales taxes, the rate is uniform statewide.
Economic nexus rules require out-of-state sellers to collect Maryland sales tax once they exceed $100,000 in annual sales or 200 transactions with Maryland customers. Since the 2018 Wayfair decision, remote sellers face the same collection obligations as brick-and-mortar retailers.
Understanding exemptions is critical because Maryland law presumes everything is taxable unless specifically exempted by statute. The burden falls on businesses to correctly identify exempt items and maintain documentation supporting exemption claims during audits.
Food and Grocery Exemptions
Unprepared Food for Home Consumption
Maryland exempts most grocery items intended for home consumption:
- Fresh fruits and vegetables
- Meat, poultry, and seafood
- Dairy products
- Bread and bakery items
- Eggs, cereals, and grains
- Canned and frozen foods
- Baby food and infant formula
The exemption applies to food sold in its natural state or with minimal processing. Once food crosses into “prepared food” territory, it becomes taxable.
What Counts as Taxable Prepared Food
Maryland taxes prepared food and meals ready for immediate consumption:
- Restaurant meals and takeout
- Hot foods sold ready-to-eat
- Foods sold with eating utensils provided by the seller
- Two or more food ingredients mixed by the seller for sale as a single item
The “eating utensils” rule creates confusion. If a grocery store sells a cold sandwich without providing utensils, it’s exempt. Hand the customer a fork with it, and it becomes taxable.
Candy, Soda, and Alcoholic Beverages
Maryland taxes certain food categories despite exempting most groceries:
- Candy: Taxable at 6%. Maryland defines candy as a “preparation of sugar, honey, or other natural or artificial sweeteners combined with chocolate, fruit, nuts, or other ingredients in the form of bars, drops, or pieces” where flour is not a required ingredient.
- Soft drinks: Taxable at 6%. This includes carbonated beverages, fruit drinks containing less than 70% natural fruit juice, sports drinks, and energy drinks.
- Alcoholic beverages: Subject to a 9% sales tax (replacing the standard 6% rate) on all beer, wine, and liquor. Maryland also imposes separate excise taxes per gallon that vary by beverage type.
Healthcare and Medical Exemptions
Prescription Medications
Maryland fully exempts prescription drugs dispensed by licensed pharmacists or physicians. This includes insulin, diabetic supplies, and chronic disease medications. Over-the-counter medications sold without prescription remain taxable at 6%.
Medical Devices and Supplies
Certain medical devices and supplies qualify for exemption:
- Prosthetic and orthotic devices
- Durable medical equipment prescribed by a physician (wheelchairs, walkers, hospital beds)
- Hearing aids and components
- Mobility aids for disabled individuals
- Eyeglasses and contact lenses when prescribed
- Diapers, toothbrushes, and feminine hygiene products
- Diabetic care items
Businesses selling these items must maintain proper documentation (prescriptions, physician orders, or medical necessity certifications) to substantiate exempt sales during audits.
Clothing and Apparel
Maryland does not provide a blanket exemption for clothing. Most clothing items are taxable at 6%.
However, Maryland hosts an annual Shop Maryland Tax-Free Week (typically the second Sunday through the following Sunday in August) where:
- Clothing and footwear priced at $100 or less per item are tax-exempt
- The first $40 of backpacks and bookbags are exempt
- This applies to back-to-school shopping
Maryland also offers an Energy Star Sales Tax Holiday (Saturday before the third Monday in February through the third Monday) exempting qualifying Energy Star appliances and solar water heaters.
Education-Related Exemptions
Textbooks for Enrolled Students
Maryland exempts textbooks required for courses at accredited educational institutions when sold to enrolled students. The exemption requires:
- The textbook must be required (not optional) for a specific course
- The purchaser must be enrolled in that course
- Documentation verifying enrollment and course requirements
School Supplies
Most school supplies remain taxable year-round. Notebooks, pencils, calculators, and backpacks all incur 6% sales tax.
During Maryland’s Shop Maryland Tax-Free Week in August, school supplies may qualify for exemption if priced under qualifying thresholds. Check the Maryland Comptroller’s website for current dates and complete lists of qualifying items.
Manufacturing and Industrial Exemptions
Maryland offers substantial exemptions for manufacturers to encourage economic development.
Manufacturing Equipment and Machinery
Equipment used directly and predominantly in manufacturing qualifies for exemption:
- Production machinery and equipment
- Industrial processing equipment
- Quality control and testing equipment
- Pollution control equipment required by law
- Parts and supplies for exempt manufacturing equipment
The “directly and predominantly” test requires the equipment be used more than 50% of the time in actual production processes.
Energy and Utility Exemptions
Residential Energy
Maryland exempts residential electricity, natural gas, and heating fuel from sales tax. This exemption applies only to energy purchased for residential use, significantly reducing household utility costs.
Energy-Efficient Products and Solar Equipment
Maryland incentivizes energy efficiency and renewable energy adoption:
- Residential solar energy equipment: Exempt from sales tax, including solar panels, inverters, mounting systems, and battery storage systems
- Geothermal heating and cooling systems: Exempt when installed in residential properties
- Energy Star appliances: Temporary exemptions during designated tax-free periods
Agricultural Exemptions
Farm Equipment and Machinery
Farmers purchasing equipment used directly in agricultural production qualify for exemption:
- Tractors and farm machinery
- Irrigation equipment
- Livestock handling equipment
- Grain storage facilities
Purchasers must provide exemption certificates proving agricultural use.
Seeds, Fertilizers, and Animal Feed
Maryland exempts:
- Seeds and plants for commercial agricultural production
- Fertilizers, pesticides, and herbicides for commercial farming
- Feed for livestock raised for commercial purposes
- Veterinary medicines for commercial livestock
The commercial purpose requirement means hobby farmers or small-scale personal operations may not qualify.
Other Notable Exemptions and Special Rates
Items Exempt from Sales Tax
- Newspapers – Print and digital newspaper subscriptions
- Infant car seats – Essential child safety equipment
- Bottled water – Generally exempt unless sold in individual servings for immediate consumption
Digital Products Are Taxable
Unlike some states, Maryland taxes digital products at 6%, including:
- Music downloads and streaming services
- Movies and video streaming subscriptions
- E-books and digital magazines
- Video games and digital software
Special Tax Rates for Specific Items
Maryland applies different rates to certain categories:
- Cannabis: 12% sales tax on adult-use cannabis products
- Alcoholic beverages: 9% (as discussed above)
- Vehicle rentals: Short-term car and recreational vehicle rentals taxed at 11.5%; truck rentals at 8%
- Electronic smoking devices: 20% on vaping devices; 60% on vaping liquid
Nonprofit and Charitable Organization Exemptions
Qualified nonprofit organizations receive sales tax exemptions on purchases used directly in their exempt purposes:
- Religious organizations
- Charitable organizations registered as 501(c)(3) entities
- Educational institutions
- Veterans organizations
Nonprofits must provide Form 312 (Vendor Exemption Certificate) to vendors when making exempt purchases.
Common Sales Tax Exemption Mistakes
Incorrectly Configured Software
Sales tax automation software requires precise configuration. Common errors include:
- Treating all food items as exempt without distinguishing candy, soda, and prepared foods
- Failing to apply temporary tax-free weekend exemptions
- Incorrectly exempting clothing year-round
- Overtaxing prescription medications or medical devices
HOST’s Free Sales Tax Software Review identifies configuration errors before they become audit liabilities.
Missing Documentation
Claiming exemptions without supporting documentation creates audit risk. Maryland requires businesses to maintain:
- Exemption certificates from tax-exempt purchasers
- Resale certificates from purchasers buying for resale
- Prescriptions or physician orders for medical exemptions
- Enrollment verification for textbook exemptions
- Agricultural use certifications for farm exemptions
Missing certificates mean previously exempt sales become taxable retroactively, with penalties and interest added.
Why Professional Sales Tax Management Matters
Maryland’s exemptions create substantial compliance complexity. Correctly identifying exempt items, maintaining documentation, and configuring systems accurately requires specialized knowledge.
That’s exactly what Hands Off Sales Tax delivers.
What HOST Provides
Nexus Analysis: We determine whether your business has a Maryland nexus requiring registration and collection obligations.
Sales Tax Registration: We handle Maryland registration paperwork, obtaining your sales tax license and ensuring proper classification.
Filing Services: We prepare and file Maryland sales tax returns monthly, quarterly, or annually based on your filing frequency.
Software Configuration Review: We review your TaxJar, Avalara, or other automation tools to ensure Maryland exemptions are correctly configured.
Audit Defense: When Maryland conducts an audit, we handle communications, organize documentation, and defend your position.
Exemption Certificate Management: We implement systems for collecting, validating, and maintaining exemption certificates.
We’ve been 100% focused on sales tax since 1999. That’s over 25 years specializing exclusively in this niche. Founded by Mike Espenshade, with parent company TaxMatrix serving North America’s largest companies, we bring enterprise-level expertise to businesses of all sizes.
Get Maryland Sales Tax Compliance Right
Understanding what items are exempt from sales tax in Maryland is just the beginning. Implementing accurate collection systems, maintaining proper documentation, and navigating temporary exemption periods requires ongoing attention and specialized knowledge.
Whether you’re a Maryland-based retailer, an e-commerce business with Maryland customers, or expanding into the state for the first time, professional sales tax management ensures compliance without draining your time.
When you’re ready to eliminate sales tax headaches and focus on growth, we’re ready to help. Contact HOST today to discuss your Maryland sales tax needs or schedule a free consultation.
Want to learn more? Get our “10 Sales Tax Mistakes E-Commerce Sellers Make” e-book.
Frequently Asked Questions
What items are exempt from sales tax in Maryland?
Maryland exempts groceries for home consumption (excluding candy, soda, and prepared foods), prescription medications, certain medical devices, textbooks for enrolled students, manufacturing equipment, residential energy, solar equipment, agricultural supplies, and purchases by qualified nonprofits.
Does Maryland charge sales tax on groceries?
Maryland exempts most grocery items intended for home consumption but taxes candy, soft drinks, and alcoholic beverages. Prepared foods and restaurant meals are also taxable.
Are prescription drugs taxed in Maryland?
No. Maryland fully exempts prescription medications dispensed by licensed pharmacists or physicians. Over-the-counter medications remain taxable.
Is clothing tax-free in Maryland?
No. Maryland generally taxes clothing and footwear at 6%. However, Maryland occasionally offers temporary sales tax holidays where clothing under $100 per item becomes exempt during designated weekends.
Do nonprofits pay sales tax in Maryland?
Qualified nonprofit organizations registered as 501(c)(3) entities can make tax-exempt purchases for organizational use by providing Form 312 to vendors. Not all nonprofit purchases automatically qualify.
How do I prove an item is exempt from Maryland sales tax?
Businesses claiming exemptions must maintain supporting documentation including exemption certificates, resale certificates, prescriptions for medical items, enrollment verification for textbook exemptions, and agricultural use certifications. This documentation substantiates exempt sales during audits.
