Maryland’s New Tech Tax Starts July 2025: What Businesses Need to Know
Beginning July 1, 2025, Maryland will impose a new 3% sales and use tax on data and information technology (IT) services, most commonly known as the “tech tax.” This change, included in the state’s 2025-2026 budget, could affect a wide range of businesses, from IT consultants and software developers to buyers of digital subscriptions and cloud-based tools. The Maryland Comptroller’s Office issued Technical Bulletin No. 56, which contains questions and answers on the new tech tax before final guidance is released.
What is Taxable?
On July 1, 2025, data, IT, system software publishing and application publishing services defined in the North American Industry Classification System (NAICS), 2022 Edition, are subject to sales and use tax at a rate of 3%. This includes services described under NAICS sectors 518 (Data Processing) and 519 (Other Information Services), as well as subsectors 5415 (Computer Systems Design) and 5132 (Software Publishing). Services that meet these definitions are taxable whether a business reports these sectors as their primary business activity code or not.
Under Maryland law, if a sales and use tax rate higher than 3% could be applied to the sale of tangible personal property, a digital code, a digital product or a taxable service, then the higher rate will apply to the sale. For example, software as a service (SaaS) qualifies as both a digital product and a taxable service. If sold for personal use, it is taxed at 6%. However, if the same SaaS sold for enterprise computer system use, it is taxed at the 3% tech tax.
Who Must Collect and Remit the Tax?
Vendors selling or delivering tangible personal property, digital codes, digital products or taxable services are required to collect and remit the sales and use tax if they meet any of the following conditions:
- An in-state seller selling to a Maryland buyer
- An out-of-state seller with a physical presence in Maryland selling to a Maryland buyer
- A remote seller with no physical presence in Maryland selling to a Maryland buyer. The vendor must collect if they:
- Made over $100,000 in gross sales in Maryland, or
- Made 200 or more separate transactions in Maryland in the previous or current calendar year.
Vendors must register for a sales and use tax license through Maryland Connect. There is no fee for the license. Tax is due at the time of sale, and vendors need to file a return and remit payment by the 20th of the month following the sale. If the sales and use tax is remitted on time, a credit of 0.9% of the gross amount of tax remitted (up to $500 per return) is available.
Who Pays the Tax?
While vendors are responsible for collecting and remitting, the buyer ultimately pays the tax. If a vendor fails to collect the sales and use tax, a buyer is responsible for remitting the use tax to the state.
Special Situation Exemptions
The following sales of data services, IT services, system software publishing services or application software publishing services are exempt from the Maryland tech tax:
- Sales of cloud computing to qualified cybersecurity companies (i.e., for-profit entities developing proprietary cybersecurity tool technology or services).
- Sales to or from qualified companies operating within the University of Maryland’s Discovery District in Prince George’s County.
- Sales for resale, provided the buyer does not use the service and resells it in its original form.
- Sales tax-exempt entities, including government agencies.
Buyers claiming an exemption must maintain all documentation substantiating their qualification for the exemption.
Multiple Points of Use (MPU) Certificates
If a buyer knows a taxable digital product or service will be used both in and outside of Maryland, or resold to an affiliated entity, they can use a Multiple Points of Use (MPU) certificate. If an MPU certificate is used, the obligation to collect and remit the sales and use tax would then shift to the buyer, not the seller.
Buyers must have a sales and use tax account and apply to the Comptroller’s office for authorization to issue an MPU certificate for each transaction for which the buyer wishes to provide the seller.
How Do Contracts and Subscriptions Factor In?
Contracts for sale of digital and IT services and software publishing services entered prior to July 1, 2025, are not subject to sales and use tax. Proper records must be maintained regarding the date and terms of sale if no tech tax is collected but delivery or payment is made after the deadline. Contractors who purchase data, IT services or software publishing services after July 1, 2025, to fulfill contracts signed before that date must pay the 3% sales and use tax which will result in increased performance costs.
Each subscription payment period is considered a separate sale for tax purposes, even if the subscription began before July 1, 2025. A subscription includes a license for the use of data or IT services or software publishing services. Tax applies to recurring payments such as licenses or SaaS subscriptions based on payment date, not the contract date.
How to Prepare for the New Tech Tax
With less than a month to go before implementation, businesses should take steps to update their processes to remain compliant with the new law. Vendors and buyers should:
- Audit current contracts to finalize long-term agreements before July 1, 2025.
- Maintain accurate records to document tax-exempt contracts and transactions.
- Review recurring subscription payments that extend beyond the deadline.
- Apply for MPU certificates if applicable and secure the right documentation to prevent future tax liabilities.
Final regulations are expected to be released by the Maryland Comptroller’s Office on Friday, June 27, 2025. In the meantime, taxpayers can submit questions to the Maryland Comptroller’s Office via email to CompMDLegal@marylandtaxes.gov.
Brown Plus will keep clients up to date on the final guidance of Maryland Comptroller’s Office. If you have any questions regarding the new tech tax, please contact a Brown Plus advisor.