On July 1, 2011, the sales and use tax rate imposed on the taxable price of alcoholic beverages changed to 9%. The 9% rate on sales of alcoholic beverages replaced the prior 6% rate; it was not in addition to that rate.
The 9% rate applies to sales of alcoholic beverages as defined in Tax-General Article §5-101(b). This includes sales of,
- Beer, distilled spirits, and wine;
- Any beverage or cocktail that may contain a mixture of both alcoholic and non-alcoholic components, including an alcoholic mixed drink, a frozen alcoholic cocktail, an alcoholic coffee drink, and a gelatin shot containing an alcoholic beverage; and,
- Beverages containing one-half of 1% or more of alcohol by volume
Other products, such as cooking wine and cooking sherry, as well as vanilla and rum extracts and similar items, are not subject to the 9% tax as they are not intended for beverage purposes. There are many personal care products and cleaning products that contain alcohol as well; however, these items are not included in the definition of alcoholic beverage and therefore are not subject to tax at the 9% rate.
If you buy a mixed drink that contains both alcoholic and non-alcoholic components, the sale of that beverage will be subject to tax at the 9% rate. However, the 9% tax does not apply to the sale of a bottle of grenadine or similar flavoring or mixer on its own that does not contain one-half of 1% or more of alcohol by volume. Those sales are taxed at the 6% rate unless otherwise exempt.
Calculating the tax
The 9% sales and use tax is a flat rate. This means that when the tax calculation results in an amount between two whole pennies, the tax is rounded off. The tax computation must be carried to the third decimal place, and the tax then must be rounded to a whole cent using a method that rounds up to the next cent whenever the third decimal place is greater than four, and rounds down whenever the third decimal place is less than or equal to four. For example, if the taxable price of the alcoholic beverage is $8.24 the tax would be $0.74 ($8.24 times 9% = $0.742). If the taxable price of the alcoholic beverage is $8.29 the tax would be $0.75 ($8.29 times 9% = $0.746).
Applying the tax
Alcoholic beverage sales and contracts fully executed prior to July 1, 2011 are subject to the 6% sales and use tax rate. Alcoholic beverage sales and contracts signed and executed on or after July 1, 2011 are subject to the 9% sales and use tax rate.
As of July 1, 2012, you may apportion the sales price between the alcoholic beverages and the other merchandise and charge the 9% sales and use tax on the taxable price of the alcoholic beverages and the 6% sales and use tax on the price of the other items (i.e. gift baskets containing alcoholic beverages, sales at restaurants, and the material terms for catered events). However, if you charge a lump-sum price, and you do not apportion the sales price among the categories of items (taxable items, non-taxable items and alcoholic beverages), you must collect the sales and use tax at the higher 9% rate.
Itemized charges made for equipment, supplies and labor including inbound freight; shipping; handling; refillable containers and taps that are directly and predominantly related to the sales of alcoholic beverages, as well as, the alcoholic beverage portion of a mandatory gratuity are subject to the 9% tax rate prior to July 1, 2012.
Due to a law change, sales made on and after July 1, 2012, the 9% rate applies to the alcoholic beverage only. Itemized charges made for equipment, supplies and labor including inbound freight; shipping; handling; refillable containers and taps; and the entire mandatory gratuity are subject to the 6% rate regardless of whether they relate to sales of alcoholic beverages or sales of food and non-alcoholic beverages. However, if the bill is not itemized, the entire bill is subject to the higher 9% tax rate.
Out of State Purchases
If you purchase alcohol out-of-state and pay sales tax to the out-of-state vendor and the rate of that tax is equal to or greater than the 9% rate, then you will not owe any additional tax when you bring the item into Maryland. However, if you are not charged a sales tax on your purchase, or if the amount of tax you pay is less than 9%, you will owe Maryland tax on the difference between the rate you paid to the other state and the 9% Maryland rate. You should also be aware that if you bring alcohol in excess of the quantity limitations specified in Tax-General Article §5-104(c) you will also owe the alcoholic beverage tax in addition to the sales and use tax.
Sales of Alcoholic Beverages and Admissions and Amusement Tax
Because a sale that is subject to both sales and use tax and admissions and amusement tax is capped at 11%, you must charge the 9% sales and use tax on the sale of the alcoholic beverages, and apply the admissions and amusement tax to the gross receipts from the sale of alcoholic beverages at a rate no higher than 2%, even if the jurisdiction normally imposes a higher rate. Your gross receipts from sales of food and non-alcoholic beverages that are taxed at a 6% sales and use tax rate are subject to admissions and amusement tax at a rate no higher than 5% due to the cap.
Effect on sales by exempt organizations:
Sales of alcoholic beverages made by specific types of organizations listed in Tax General Article §11-204(b) are exempt from the 9% tax on alcoholic beverages.
Effect on purchases by exempt organizations:
Maryland sales and use tax exemptions apply to all purchases for use by the exempt organization, regardless of the applicable tax rate. Therefore, your organization's purchases of alcoholic beverages made to carry on the organization's work are exempt from the 9% tax on alcoholic beverages.
Paying the tax
You must report the tax you charged on sales of alcoholic beverages separately from the tax imposed on sales of other items. Effective July 2011, the sales and use tax return will include separate lines for tax imposed on sales at the 6% rate and tax imposed on sales at the 9% rate. The revised sales and use tax return will also have separate lines for reporting tax on purchases at each rate as well.
As of August 1, 2013, EFT ACH is no longer an option for reporting or submitting sales and use tax payments. Taxpayers required to pay with immediately available funds can pay using direct debit by electronically filing for free via bFile; or can pay using a credit card by going online or by calling 1-800-2PAY-TAX (1-800-272-9829). If you are new to bFile, please verify that your financial institution will accept debit transactions.