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Maryland’s New 3% IT Services Tax: Compliance Strategies and Key Insights for Businesses

  • Maryland introduces a 3 percent sales and use tax on IT services starting July 1, 2025.
  • The tax aims to modernize the tax base and capture revenue from the digital economy.
  • Affected services include cloud storage, web hosting, SaaS, IT consulting, and custom software development.
  • The prior exemption for custom software is removed, making these services taxable.
  • The tax rate is 3 percent unless the service qualifies as a digital product or tangible personal property, which is taxed at 6 percent.
  • Maryland Technical Bulletin No. 56 clarifies that taxability is based on the nature of the service, not the business’s primary NAICS code.
  • Internal services between affiliated companies are taxable unless exempt.
  • Subscription services are taxable for payments after July 1, 2025, while pre-July 1 contracts are generally not taxable.
  • Businesses must register for a Sales and Use Tax license and comply with the new tax requirements.
  • Exemptions exist for certain research and development contracts.

Source: jdsupra.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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