Forming your company structure in Delaware, specifically as a corporation, allows you a lot of flexibility, but depending on which state you operate in, you may still need to observe local rules.
If you conduct business in the state of Maryland, you must register with the state. We'll go over the steps and simplify them. But first, how can you tell if you're doing business legally in Maryland?
When to register as doing business in Maryland
The State refers to Delaware C Corporations and all other types of business entities—such as limited liability companies (LLCs), limited partnerships, limited liability partnerships—incorporated outside of Maryland as "foreign" corporations.
Maryland law does not clearly define what constitutes “doing business” in the state. However, Maryland rules provide that the following actions do not necessitate registration with the state:
- Defending or settling a lawsuit
- Having a bank account in the state
- Selling through independent contractors
When to register to collect sales tax in Maryland
Every state has different rules about when a corporation is required to pay sales tax. These are referred to as sales tax nexus regulations.
Consider the nexus to be a specific version of that state's border; if you conduct certain business activities within that border, you are subject to the state's sales tax nexus and must register for and collect state sales tax.
Typically, these activities involve the purchase and sale of goods and services.
The sales tax nexus laws in Maryland apply to companies which offer physical and digital products or services to Maryland residents.
Until 2018, selling or purchasing non-physical things, such as subscriptions to streaming services, SaaS memberships, and so on, did not normally qualify you for sales tax nexus. This changed after a major court judgment in 2018. If you buy or sell non-physical products or services in a state, you may be subject to its sales tax.
Maryland Sales Tax Nexus (physical goods and property)
If you have physical presence in Maryland, then you will likely need to collect and remit sales tax. You are physically present in a state if you have warehouses, retail spaces, employees and/or representatives of the business in the state, or have revenue-generating personal property in the state.
You will need to pay sales tax as long as you have physical presence regardless of any minimum thresholds.
You can learn more about physical presence for sales tax purposes through the State’s website.
Maryland Sales Tax Nexus (non-physical goods and property)
The new state sales tax legislation that apply to non-physical (i.e. online) purchases allow you to qualify for sales tax nexus even if you do not have a physical presence in the state.
You will need to collect and remit sales tax if you do the following in the current or previous year:
- Collect $100,000 or more in gross revenue from Maryland; or
- Have 200 or more separate transactions into Maryland
If you would like to take a deep dive, you can check out the State’s website.
As always, this is not legal advice, but rather a guide. If you're unsure if you have a Maryland sales tax nexus, check with your legal counsel and/or an accountant who is familiar with Maryland's law code and tax regulations.
How To Register Your Non-Maryland Business With the State
You must complete the following steps to become a qualified foreign business in Maryland:
- Select a unique name under which to do business. Most corporations choose a name they registered with incorporating in Delaware; however, you may choose a name that is different from the name you incorporated with. This is typically referred to as a “trade name” in Maryland law.
- You’ll need to file a Foreign Corporation Qualification form (also known as a “certificate of authority” in some states) with the Maryland State Department of Assessments and Taxation (SDAT). The form also asks for the name and address of your Maryland registered agent or registered agent service (if any), as well as its principal office address (if any) within the state of Maryland.
- You’ll need to obtain a “certificate of existence” from your business’s home state. For your Delaware Corporation, that comes in the form of a Delaware Certificate of Good Standing issued by the Delaware Secretary of State.
- You pay the Maryland Department of Assessments and Taxation a $100 filing fee.
- Wait. Processing typically takes two to four weeks.
Once your company receives its Maryland foreign qualification, you’ll need to comply with certain ongoing compliance and reporting requirements.
Compliance as a Qualified Foreign Business in Maryland
To stay in compliance and continue legally doing business in Maryland, you need to meet two requirements: maintaining a resident agent and filing your annual report. On top of that, you may also need to pay a corporate income tax.
Resident Agent in Maryland
Your resident agent in Maryland is the legally-designated point of contact for a company or nonprofit doing business in the state.
This “resident agent” is similar to what most other states call a “registered agent.” If you don’t have a physical address for your company in Maryland, it may be advantageous to find a resident agent to receive state notices, registered mail, and service of process on your foreign entity’s behalf.
Foreign businesses are required to have a registered office in Maryland. The office cannot be a P.O. box, rather it must be a physical address of your resident agent or a licensed resident agent service.
Your resident agent will forward any important information, such as business mail, to you. There are a number of firms that contract out resident agents. They typically cost between $50 and $100 per year.
Annual Reporting In Maryland
Every year, you must file a statement with the State, updating any changes to the company address or the composition of the Board and officers. You’ll include info like:
- The legal name of your business
- The name and address of your registered agent
- The names and addresses of board members, managers, and officers
Your filing fee for the annual report is $25.
Paying Corporation Income Tax
Maryland has a corporation income tax. The tax is imposed directly on the income of your corporation. For more information on filing and paying your corporation income tax, please see the following guidance from Maryland’s Comptroller.
Sales Tax Registration In Maryland
If you meet the requirements to collect sales tax in Maryland, you will need to register for a sales and use tax license with the Maryland Comptroller. You can register for a sales and use tax license through the Maryland Combined Registration Online Application.
Hiring And Paying Employees In Maryland
When you hire a new employee in Maryland, federal and state laws require that you report new hires within 20 days of their hire date. You can report your new hires through Maryland’s online filing system.
Your payroll provider should be able to take care of paycheck withholdings, but it’s up to you to register as an employer with the State and set up an online employer account.
For a comprehensive guide of your responsibilities, Maryland provides the following information.
The Easiest Way To Register Your Business In Maryland
To register your business in Maryland, you’ve got to keep track of a lot of moving parts. Failing to file the right forms, provide the right information, or stay on top of compliance laws can lead to serious headaches.
Capbase makes it easy. When you incorporate your Delaware corporation on Capbase, we will generate the required information needed to register to do business in Maryland and keep you up to date on any required filings.
The compliance calendar inside your Capbase account will notify you of upcoming fees, reporting, or other requirements, so you can keep your startup in good standing with Maryland state officials.
Written by Beth Zhao
Beth is a second year law student at The George Washington Law School. She is a member of the Public Contract Law Journal.
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