Taxing digital goods: trends in MD, other states and abroad

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Patrick Cox is a partner with Nixon Peabody LLC and a member of the law firm’s tax team who focuses on various tax aspects facing domestic and international companies. We recently asked him to share some thoughts on taxation trends in the area of digital goods and services.

What is one common misconception you hear about taxing digital goods and services?

Clients will often ask, “If I don’t have a physical presence in the state or foreign country, how can I be subject to tax in that jurisdiction?”

How are states expanding tax rules to cover software, cloud services, and digital products?

Maryland’s digital advertising tax is the most well-known when it comes to new forms of digital taxation. This is a first-of-its-kind taxation of revenues a company receives from advertising on the internet.

In other words, if a local Maryland business pays a digital platform for advertising there, then the platform is subject to the DAT on this revenue, and the amount of tax is determined based on a formula meant to approximate Maryland-based revenue.

The DAT is subject to several court challenges and recently suffered a setback regarding a revision to the DAT that prohibited the taxpayer (the digital platform in our example) from passing on the tax to its advertisers and, in doing so, forbade the taxpayer from separately stating the “passed through tax” on its invoice to its advertisers. This prohibition was recently struck down as unconstitutional under the First Amendment by the Fourth Circuit Court of Appeals on August 15, 2025.

New York is contemplating the taxation of digital currency as well as a separate tax on streaming services. This is a shift for New York, which, along with a couple dozen other states, generally does not apply sales tax on digital transactions.

What recent legislative or regulatory changes in digital goods taxation stand out to you as need-to-know?

Maryland’s DAT is very limited in its application because it only applies to very large companies, but it is important to understand and follow, as it could be a harbinger of things to come.

What about New York?

New York’s proposed tax on digital asset transfers (Assembly Bill A08966, introduced Aug. 13, 2025) is yet another attempt in New York to tax digital assets. Prior attempts have failed, but it is important to follow these state-level trends and compare them to international trends, such as the Organisation for Economic Co-operation and Development’s (OECD) proposed Pillar One.

Anything else you’d like to share on this theme?

Following the 2018 sales and use tax decision in Wayfair, more and more states have embraced Wayfair, both for the remote taxation of sales tax transactions but also for corporate income tax. This so-called marketplace taxation, or economic nexus, has spread to the world stage in the form of the Pillar One proposal by the Organisation for Economic Cooperation and Development (OECD), which aims to tax digital services transactions.

Caurie Putnam is a Rochester-area freelance writer.