What is the new 3% sales tax in Maryland about?

Maryland has proposed a 3% sales tax on data and IT services, effective July 1, 2025, as part of a budget bill to address a $3 billion budget gap.

Which services will be subject to the new 3% sales tax in Maryland?

The new tax will apply to services like data processing, hosting, IT services such as web search portals, online directories, digital libraries, and computer system design.

When will the new 3% sales tax on data and IT services take effect?

The 3% sales tax will go into effect starting July 1, 2025.

How does the 3% sales tax on data and IT services compare to the general sales tax rate in Maryland?

The 3% sales tax is lower than the general sales tax rate of 6%. However, in cases of ambiguity, the higher rate of 6% will apply.

Why did Maryland decide to impose a 3% sales tax on data and IT services instead of the proposed 2.5% tax?

The 2.5% sales tax proposal faced strong opposition from the Maryland business community. As a result, the state government adjusted the proposal to a 3% tax on specific digital and IT services.

What happens if the Maryland Senate makes amendments to the proposed sales tax bill?

If the Senate makes amendments, the bill will return to the House of Delegates, which can either accept or reject the changes. If rejected, the bill will go to a conference committee for further discussion.

Maryland to Impose 3% Sales Tax on Data and IT Services from July 2025

The end of March brought the adoption of the tax-related budget Bill by the House of Delegates in Maryland, which includes the introduction of a new sales tax on data and IT services. This is the second time in the past four years that sales tax rules for digital goods and services are changed.

In 2021, Maryland decided to broaden the tax base for sales and use tax and include various digital goods and services, while allowing exemption for many software and SaaS transactions.

Impact on Taxable Persons

Starting from July 1, 2025 the definition of taxable service will include data processing, hosting and related services, other IT services, such as web search portals and online directories, digital libraries and research databases, computer systems design, software design, development and publishing services.

The applicable sales and use tax is set at 3%, which is much lower than the general rate of 6%. However, in cases where it might be difficult to conclude which rate applies, the higher of the two rates is applicable.

The decision to impose a 3% sales tax on data and IT services resulted from the decision not to impose previously proposed 2.5% sales tax on many B2B services, which was part of the Budget Highlights for the 2026 fiscal year. Due to the loud opposition from the Maryland business community on the previously proposed measures, the state government had to find a different solution to close a USD 3 billion budget gap in upcoming years.

The proposal to impose a 3% sales tax on data and IT services is forwarded to the Senate for consideration. In the case the Senate makes amendments to the proposed sales tax, the Bill will go back to the House of Delegates, which can either accept or reject Senate amendments. Should the House reject the proposed amendments, the Bill will go to the conference committee for further consideration.

Conclusion

Although, it remains to be seen what the final decision on the imposition on the tax will be, it should be noted that the current measure was proposed by the Maryland Governor on the basis of the agreement he reached with House and Senate leaders. Therefore, it is to be expected that starting July 1, 2025 businesses will have to collect and remit 3% sales tax on provided data and IT services.

Source: EY, VATabout