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July 1, 2025, MD Tax on Certain IT Services

Starting July 1, 2025, certain Maryland businesses will be required to collect a 3% sales tax on sales of certain IT services. The Maryland General Assembly passed the Budget Reconciliation and Financing Act (BRFA) during the 2025 legislative session. BRFA expands the definition of services subject to sales and use taxes to include data services, information technology services, system software publishing services and application software publishing services.  For clarity, BRFA uses the service definitions set forth in the 2022 edition of the North American Industrial Classification System (NAICS), a publication that defines 20 sectors that represent broad categories of economic activity.

The specific services that now fall under the collection of the 3% sales tax are described in NAICS sectors 518 and 519 and subsectors 5415 and 5132. Sector 518 refers to Computer Infrastructure Providers, Data Processing, Web Hosting (except software publishing) and Related Services (including streaming support services but not streaming distribution services). Sector 519 refers to Web Search Portals, Libraries, Archives and other information services. Subsector 5415 refers to Computer Systems Design and related services. And finally, subsector 5132 refers to Software Publishers. If a business has chosen a different NAICS classification but sells a service described within these codes, that business is still required to collect and remit sales and use tax on the sale of those services.

Vendors should evaluate each service they offer individually to determine their tax liability. Vendors also should use industry standards and common definitions in their analysis. The Maryland Comptroller’s Office has listed the services subject to the 3% sales and use tax in two places: Section IV of Technical Bulletin No. 56, which is linked below, and in the Code of Maryland Regulations (COMAR) as regulation 03.06.01.48.

The sales and use tax applies to all retail sales regardless of whether the seller makes any profit from the sale, unless an exemption applies. The sales that are not subject to the 3% sales and use tax, in addition to existing sales and use tax exemptions, are:

1. A sale of cloud computing to a qualified cybersecurity business. A “qualified cybersecurity business” is a for-profit entity engaged primarily in the development of innovative, proprietary cybersecurity technology or the provision of cybersecurity services.
2. A sale to a qualified company located in the University of Maryland’s Discovery District in Prince George’s County was made in connection with the work of the company. A “qualified company” is a company that contracts with the University of Maryland’s Applied Research Laboratory for Intelligence and Security to develop systems and technologies to advance the use of quantum computers.
3. A sale by a qualified company located in the University of Maryland’s Discovery District in Prince George’s County.

For more information and assistance, please read through the Maryland Comptroller’s Technical Bulletin 56 or reach out to Nancy Kuhn or Eric J. von Vorys.

Thank you to Matthew Winson for his contribution to this Alert.