Maryland Enacts 3% Sales Tax on IT & Data Services Effective July 2025

The proposed Bill, which includes expanding the definition of taxable services for sales and use tax purposes, previously passed by the Maryland House of Delegates, was enacted on May 20, 2025. Therefore, as expected, the recently signed legislation will come into effect on July 1, 2025.

Taxable Services Under New Legislation

The definition of taxable services is expanded to include specific data or information technology (IT) services. Additionally, the Bill provides a list of such services that, from July 1, will be subject to a 3% sales tax rate. Therefore, the definition of taxable services subject to a 3% sales tax includes data processing, web hosting, and related services, as well as cloud computing and streaming support, but excludes actual content distribution.

Companies that operate platforms that gather, store, and enable users to search and retrieve information online, such as web search portals, libraries, and archives, are also subject to 3% sales tax. Furthermore, firms offering IT expertise, including custom software development, IT system design and integration, management of client IT systems, and technical consulting, are also included in the listed taxable services.

Companies that create and distribute software, whether system or application software, and provide detailed documentation, installation support, and updates, are also liable to charge, collect, and remit sales tax.

The new legislation applies the same sourcing rules as those defined for the retail sale of digital codes and digital products. Therefore, buyers may provide vendors with a certificate indicating "multiple points of use" (MPU) at the time of purchase. 

By doing so, a buyer who knows that the purchased digital code, product, or IT service will be used simultaneously in more than one tax jurisdiction can inform the vendor and use any reasonable, consistent, and well-documented method to reflect the primary use location within the state.

Conclusion

With the enactment of the Bill, Maryland closed the chapter on broadening the tax base to include data and IT services, and also ended the debate of which rate will apply to these taxable services. As a consequence of changes in legislation, some businesses will need to collect and remit sales and use tax for the first time. 

Therefore, taxable persons providing these data and IT services should register with Maryland Tax Connect. This self-service portal enables Maryland taxable persons to file their taxes online easily and securely, as well as communicate with the Comptroller’s office.

Source: Deloitte, House Bill 352, VATabout