The Maryland Supreme Court recently issued a decision holding that equipment used to transmit and distribute electricity to Maryland customers qualified for an exemption from sales and use tax as tangible personal property used “directly and predominantly in a production activity.” Tax-Gen. § 11-210(b)(1). While Maryland generally imposes sales and use tax on retail sales or uses of tangible personal property in Maryland, it exempts sales of tangible personal property used directly and predominantly in a production activity. Id. The term “production activity” (Tax-Gen. § 11-101(f)(1)) is defined, in relevant part, as “assembling, manufacturing, processing, or refining tangible personal property for resale.” “Tangible personal property” is defined to include “electricity.” Tax-Gen. § 11-101(k)(2)(iii).

In this case, a public utility company that sells and delivers electricity to Maryland customers claimed the “production activity” exemption on its conductor, substation, and transformer equipment for tax periods, August 1, 2003, through July 31, 2007. This equipment was used to “step up” and step down” the voltage to levels suitable for transmission to customers. Relying on a dictionary definition, the Court determined these activities qualified as “processing” and were thus a “production activity.” The Court further affirmed the Tax Court and concluded that the equipment was “directly and predominantly” used for that function. The equipment thus qualified for the sales and use tax exemption. However, the Court also concluded that a portion of the taxpayer’s refund claims were filed beyond the statute of limitations.

Comptroller of Md. v. Potomac Edison Co., No. 12 (Md. Jul. 17, 2026).