Sales and Use Tax Exemptions
There are sales and use tax exemptions on certain types of repairs and sales.
The restoration of used property to its original condition or usefulness is repair, which is not taxable. The creation or completion of a new or different item is fabrication, which is taxable. Charges for parts installed on repaired items are taxable if repair labor and parts charges are separately stated. Parts sold over-the-counter are taxed. The sales and use tax applies to automobile repairs the same way it applies to repairs to other kinds of property such as appliances, home electronics and office equipment. You must pay tax on parts if you are making lump-sum repairs for a governmental or other exempt organization. The exemption of these organizations does not extend to the purchases of parts for lump-sum repairs on property other than realty.
Contractors making repairs of realty must pay the tax on all purchases of materials used. The only exception is that contractors for private nonprofit charitable, educational or religious organizations may use the organization's Maryland sales and use tax exemption certificate to avoid the tax on purchases of materials that will be installed in real property.
Sales, including rentals, to a farmer of farm equipment used to raise livestock and poultry, prepare, irrigate or tend the soil, or plant, service, harvest, store, clean, dry or transport seeds or crops are exempt from the sales and use tax. Farm equipment is treated as personal property entitled to sales and use tax exemption even if attached to real property. Both replacement parts and components, including hydraulic oil, are also exempt.
The Maryland sales and use tax does not apply to sales of machinery and equipment used in production activities, sales of tangible personal property for consumption in production activities, or sales of tangible personal property for resale or incorporation as a material or part of other tangible personal property produced for sale.
Servicing, maintaining, or repairing tangible personal property other than production machinery or equipment, or providing for the health and comfort of employees are not production activities.