Maryland tax overhaul: What’s the impact on you
With the passage of HB0352, Maryland is expanding its sales and use tax base to include a wide array of data and information technology services and software publishing services while also increasing a range of other taxes.
What’s taxable?
These categories encompass a broad spectrum of services, such as computing infrastructure provision, data processing, web hosting, software publishing and computer systems design. Essentially, if a service falls within these NAICS descriptions, it is subject to a 3% sales and use tax. These changes became effective July 1, 2025.
Determining taxability
Businesses must evaluate each service they provide to determine its taxability. The primary business activity code reported for federal and state income tax purposes is not the deciding factor. Instead, the specific services offered must be compared to the NAICS activity descriptions defined by Maryland law. This means that even if a business operates under a different NAICS code, it must collect and remit sales tax if it provides taxable services.
Impact on SaaS
Software as a Service (SaaS) is a notable inclusion in the new tax regime. SaaS meets the definitions of both a digital product and a software publishing service. For individual use, SaaS is taxed at the state’s standard rate of 6%, while for use in an enterprise computer system, it is taxed at the 3% rate. This distinction underscores the state’s approach to taxing digital products differently based on their usage context.
The exemption for customized, configured or modified SaaS has been repealed effective July 1, 2025. These products and services are now taxable in Maryland.
Subscription and installment sales
The tax implications extend to various sales arrangements, including subscriptions, installment sales and credit sales. Each subscription payment is considered a separate sale, making it subject to tax if paid after the effective date. Similarly, installment sales and credit sales are taxed based on the timing of payments and the delivery of services.
Applicable exemptions
The Maryland sales and use tax does not apply to certain sales of data services, information technology services, system software publishing services or application software publishing services. These exemptions include sales of cloud computing to a qualified cybersecurity business, which is defined as a for-profit entity primarily engaged in developing innovative, proprietary cybersecurity technology or providing cybersecurity services.
Additionally, sales to a qualified company located in the University of Maryland’s Discovery District in Prince George’s County are exempt when made in connection with the company’s work. A qualified company is one that contracts with the University of Maryland’s Applied Research Laboratory for Intelligence and Security to develop systems and technologies for advancing the use of quantum computers. Furthermore, sales by a qualified company in the Discovery District are also exempt. Buyers claiming these exemptions must retain all documentation that substantiates their qualification for the exemption.
Multiple points of use certificates
If the buyer is aware that a digital code, product or taxable service will be used both within and outside Maryland or intends to resell it to an affiliated group member or related entity, the buyer may provide the vendor with a multiple points of use (MPU) certificate at the time of purchase.
This certificate transfers the obligation of collecting and remitting sales and use tax from the seller to the buyer. The buyer must apportion the use of services reasonably and uniformly. Reasonable methods of apportionment include dividing the number of employees in Maryland using the digital product, code, or IT service by the total number of employees using it or dividing the number of licenses for the digital product, code or IT service in Maryland by the total number of licenses issued.
Increased taxes for wealthy residents
Starting July 1, 2025, and applicable to taxable years beginning after December 31, 2024, a fresh wave of budget legislation is set to shake up the tax landscape for high earners. Individual filers with income between $250,001 and $500,000 will continue to be taxed at 5.75%. However, those earning between $500,001 and $1 million will now face a new rate of 6.25%, while income exceeding $1 million will be taxed at 6.5%.
For joint filers, income between $300,001 and $600,000 will remain taxed at 5.75%. Joint filers with income between $600,001 and $1,200,000, as well as those with income over $1,200,000, will be subject to the new rates of 6.25% and 6.5%, respectively. This legislation marks a significant shift in the tax structure, aimed at addressing the financial dynamics of high-income households.
A new 2% tax will now apply to capital gains exceeding $350,000. But that’s not all — itemized deductions for individual taxpayers will decrease. Specifically, deductions will be reduced by 7.5% of the amount by which federal adjusted gross income surpasses $100,000 for married individuals filing separately, or $200,000 for everyone else.
The bill also increases the highest permissible county income tax rate to 3.3%, a slight rise from the former cap of 3.2%.
Cannabis dispensaries
The tax on recreational cannabis increases from 9% to 12% effective July 1, 2025.
Sports betting and gambling
The tax rate on online sportsbook operators rises from 15% to 20%. However, the tax rate on in-person sports betting remains unchanged at 15%.
How Wipfli can help
Navigating the complexities of Maryland’s new tax regulations can be daunting, but you don’t have to do it alone. Wipfli's team of experienced professionals is here to guide you through every step of the process. Whether you need help understanding the tax implications for your specific services or assistance with compliance, Wipfli has the insight to support your business.
Wipfli’s state and local tax team is ready to discuss your needs and find tailored solutions that help ensure you stay ahead of the curve.
Learn more about our state and local tax services.
Read more:
