As part of its fiscal year 2026 budget legislation, Maryland enacted a number of new tax provisions, including the imposition of a 3% sales tax on a broad range of information technology and data services. The tax took effect July 1, 2025, and significantly expands the state’s sales tax base by treating certain digital services as taxable services for the first time. Lawmakers had previously considered a broader tax on business-to-business services but ultimately limited the scope to technology and data services following opposition from the business community.
1. Scope of the Tax
The new tax applies to gross receipts from covered services performed in Maryland. The law references specific NAICS codes to define taxable services, including:
- NAICS 518: Data processing, computing infrastructure, and web hosting services
- NAICS 519: Web search portals, online archives, and related information services
- NAICS 5415: Computer systems design, software development, and IT consulting
- NAICS 5132: System and application software publishing services
Taxable examples include cloud storage, application hosting, server management, streaming infrastructure, software installation, and licensing of media or software rights. The tax applies a 3% rate unless a transaction is separately subject to the general 6% sales tax, in which case the higher rate governs.
2. Sourcing and Exemptions
The tax is generally sourced based on the customer’s tax address. However, businesses may use a multiple points of use (MPU) certificate in two circumstances:
- The service will be concurrently used in more than one jurisdiction
- The service will be resold in its original form to another member of an affiliated group or pass-through entity
In either case, the buyer assumes the tax liability and must use a consistent, reasonable apportionment method supported by internal records. A narrow exemption also applies to qualified research and development activities conducted in partnership with the University of Maryland’s Applied Research Laboratory.
3. Compliance Considerations
Recommended next steps for businesses providing or purchasing affected services include:
- Reviewing service offerings to determine taxability
- Evaluating whether business activities create a nexus in Maryland
- Updating billing systems and invoicing processes to apply the new tax
- Revising customer contracts as needed to address pricing and tax responsibility
- Training internal finance, tax, and billing teams on exemption documentation, sourcing rules, and MPU procedures
4. How We Can Help
The Venable State and Local Tax team is available to help evaluate how Maryland’s new 3% “tech tax” may affect your business. We can assist with analyzing the taxability of your services, reviewing nexus and registration obligations, and identifying areas where contracts and billings systems may need to be updated to reflect the new rules. Please contact us directly if you have questions about Maryland’s new technology services tax or need assistance with compliance planning.