Maryland’s New Tax on Technology Services: What You Need to Know
Starting July 1, 2025, Maryland introduced a new 3% sales tax on various technology services, a move designed to modernize the state’s tax system in response to the growing digital economy.
What’s Taxed?
The new tax applies to a broad range of technology services, including:
- SaaS subscriptions
- Cloud storage and hosting
- Web development
- Digital advertising
- IT consulting
Who Is Affected?
- Tech Providers: Companies offering tech services in Maryland will need to adjust their pricing and billing to include the new tax.
- Businesses: Companies that rely on tech services will face higher costs as the tax is passed on to them.
- Consumers: Individuals will also see price hikes on tech services like cloud storage or software subscriptions.
Why Implement the Tax?
The state is looking to increase revenue and adapt to the modern, digital economy. As traditional sales tax sources have declined with the rise of e-commerce, Maryland wants to ensure that tech services are taxed just like physical goods or other services. This also helps level the playing field between digital companies and traditional businesses.
Revenue Thresholds for Filing
- Economic Nexus: The tax applies to businesses with $100,000 or more in sales to Maryland customers in the previous 12 months or with 200 or more separate transactions in Maryland in the previous or current calendar year. This includes all taxable activities related to technology services, such as SaaS, cloud hosting, and data processing.
- Physical Nexus: Any company with a physical presence in Maryland, such as an office or employees, is subject to the tax, regardless of the amount of revenue.
Tax Rates
Excise Tax Rate: The tax rate on the affected technology services is 3% of gross receipts from data-related activities. But under Maryland law, if a sales and use tax rate higher than 3% can be applied to the sale of tangible property, a digital code, a digital product or a taxable service, then the higher rate will apply to the sale.
Impact on Businesses
Businesses will need to account for the additional costs of the tax, whether by adjusting prices or absorbing the costs. They’ll also have to ensure compliance with the new tax reporting requirements.
Consumer Impact
Consumers in Maryland will notice a slight increase in the cost of digital services they use regularly, from cloud storage to software tools.
What’s Next?
As the tax is now active, businesses need to adapt to these new rules. Depending on how the tax impacts its economy, other states might follow Maryland’s lead or rethink their own tax policies.
In summary, Maryland’s new tech services tax represents a shift in how the state captures revenue from the digital economy. While it brings challenges, it could pave the way for a more modern and equitable tax system.
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