July 1, 2025 By: Adrienne G. Schlenker Starting July 1, 2025, Maryland will begin taxing a wide range of technology-related services. A new 3% sales and use tax will apply to certain digital and information services that were previously exempt. This change could affect many businesses that either provide or rely on tools like cloud hosting, SaaS platforms, software licensing, and data processing. The tax is based on how a service is classified, not whether software or hardware is transferred. It applies to four categories under the 2022 NAICS code system, including software publishing, data infrastructure, information platforms, and systems design services. Below is a summary of the key details. Table of Contents Scope of Tax The tax applies to services classified under four NAICS codes from the 2022 edition: 5132: Software publishing 518: Data processing, hosting, and infrastructure 519: Information services, including search platforms and media rights licensing 5415: Computer systems design and related services The tax depends on the nature of the service provided, not on the provider’s business classification. A single company may offer both taxable and non-taxable services under different agreements. The Maryland Comptroller’s Technical Bulletin No. 56 includes examples of taxable services under each category. These range from subscription-based software platforms and cloud storage to licensing fees for data archives or search tools, software integration projects, and backend IT infrastructure support. The bulletin goes on to say that SaaS is taxable whether it involves access to software hosted by the vendor or bundled with related services. Custom software, previously excluded in some cases, is now generally taxable when delivered as part of a broader service offering. Business Implications and Broader Reach Many businesses may start seeing this new tax applied in places it has not appeared before. Services like cloud software, off-site data storage, and digital platform licensing are part of daily operations for many companies. Under the new law, these services could now carry the 3% sales tax. This affects both one-time purchases and ongoing services such as software subscriptions or recurring IT support. For example, a company that pays monthly for a CRM system or outsources data backups to a third-party vendor may now see tax added to those charges. Each payment made on or after July 1 is treated as a separate taxable sale. Even if the original contract was signed earlier in the year, charges that occur after the effective date can still be taxed. There is an exception for long-term agreements that were fully signed before July 1. If the terms remain unchanged, those payments may stay exempt. However, even small updates like adding users, providing system upgrades, or extending the term will trigger the new tax. Although most of the impact will be on businesses, individual consumers may see changes too. Providers will need to evaluate how these offerings are categorized and taxed. Multi-State Use and MPU Certificates Businesses that use a digital service across multiple states have the option to submit a Multiple Points of Use (MPU) certificate to their vendor. This certificate allows the buyer to allocate and pay tax only on the portion of the service used in Maryland. For example, if a cloud software license is shared across regional offices in several states, the buyer can use an MPU certificate to avoid being taxed on the full sale amount. Without the certificate, the vendor must apply the tax to the total value of the service. Filing an MPU certificate shifts the burden of tracking and tax remittance from the vendor to the buyer. Accurate documentation will be important, and buyers using this option may want to consult a tax advisor to maintain proper compliance. It is important to note that Maryland businesses are responsible for paying this new tax even if it is not charged at the time of sale. For example, if the seller of the service does not charge sales tax, the purchaser is responsible for remitting the use tax to the state of Maryland. Companies will need to pay close attention to eligible transactions to comply with new regulations. Limited Exemptions The new tax does not apply in every situation. Maryland has carved out a few specific exemptions for certain types of buyers. Cloud computing services sold to qualified cybersecurity businesses are not subject to the tax. Companies based in the University of Maryland’s Discovery District are also excluded if the services are related to quantum computing development. Next Steps Technology service providers will want to confirm exactly which services are taxable and update invoice systems accordingly. Communicating with clients about this change in the tax code can help build trust and avoid billing disputes. This could include updating engagement letters, adding a tax line to future invoices, or posting a notice on client portals. For buyers, there will be a need to review current contracts and confirm taxable services. A tax professional can prepare the business for compliance and help with any questions that may arise. Additional details are expected later this summer. Businesses need to carefully review new requirements and make sure they’re collecting the proper amount of sales tax from clients. Staying proactive will help to prevent surprises should your company be selected for a sales tax audit. If you have questions about the information outlined above or need assistance with another tax or accounting issue, KatzAbosch can help. For additional information, please contact us using the form below. Related KatzAbosch Articles Maryland Proposes Sales Tax on Professional Services MARYLAND ADOPTS SALES TAX ON DIGITAL GOODS & SERVICES Tax Deadline Moved to July 15th Author:Adrienne G. Schlenker, CPA Adrienne Schlenker, a Shareholder with KatzAbosch, joined the firm in 1984. She is a member of the firm’s Tax Department and Medical Practice Committee. Get in Touch: First Email What Can I Help You With?PhoneThis field is for validation purposes and should be left unchanged. Δ