How Is Maryland Local Tax Calculated?

In Maryland, local taxes are applied in addition to the state sales tax, and the total tax rate can vary depending on the location of the sale. The state sales tax rate is a flat 6%, but local jurisdictions within Maryland, such as counties and cities, have the authority to impose their own local taxes. These local taxes can increase the total sales tax rate that consumers pay, making it important for both retailers and shoppers to understand how these taxes are applied.

How Local Taxes Are Applied in Maryland

Maryland's local tax system is structured so that each county or city can impose an additional sales tax on top of the state's base 6% rate. These local taxes are generally applied to the sale of tangible personal property and some services, just like the state sales tax. However, the rate of the local tax can differ from one jurisdiction to another. For instance:

• Baltimore City: Retailers in Baltimore City charge a total sales tax rate of 6%, the state rate, plus an additional local tax of 2%, bringing the total tax rate to 8%.
• Montgomery County: In Montgomery County, the combined sales tax rate is 6% (state rate) plus a 3% local tax, making the total tax rate 9%.
• Prince George’s County: In Prince George's County, the total tax rate is 6% (state rate) plus an additional 3%, which makes it 9%.

The local tax rate is determined by the jurisdiction in which the sale occurs. Therefore, a retailer located in one county might charge a different total sales tax rate compared to a retailer located in another county.

Calculating the Local Tax

To calculate the total sales tax, both the state and local tax rates must be combined. For example, if you make a $100 purchase in a county with a 9% total sales tax rate (such as Montgomery County), the tax calculation would be:

1. State Sales Tax: $100 × 0.06 = $6 (state tax)
2. Local Tax: $100 × 0.03 = $3 (local tax)
3. Total Sales Tax: $6 + $3 = $9

So, the total cost of the item would be $109 ($100 + $9 in total sales tax).

Why Local Tax Rates Vary

Local taxes vary because each county or city in Maryland has the authority to set its own rates based on their local budgets and needs. These local taxes help fund local government services, such as schools, public safety, and infrastructure.

Retailers must be diligent in ensuring they are charging the correct local tax rate based on their location or the location of their customers. Incorrectly charging sales tax can lead to penalties or audits by the state.