Tax Alert: New “tech tax” and other increases take effect in Maryland
The Maryland legislature passed its annual budget and reconciliation bill (HB 352) on April 7, 2025. This budget bill introduces new and increased taxes across a range of individual and business taxpayers. A key provision in the budget is a “tech tax” – the expansion of the definition of “taxable services” to include various software and information technology applications. The expanded definition is expected to impact the technology sector in a significant way.
New 3% Sales Tax Targets Software and Tech Services Starting July 1, 2025
As of July 1, 2025 a 3% sales tax will apply to the sales of data and information technology services in Maryland. The services for which the new sales tax will apply include services as defined by selected NAICS Codes:
- 518 – Computing Infrastructure, Data Processing, Web Hosting, and related services,
- 519 – Web Search Portals, Libraries, Archives and other Information Services,
- 5132 – System or application software publishing, and
- 5415 – Computer Systems Design and related services.
Who Is Exempt? Key Exceptions to the Maryland Tech Tax
The bill provides exemptions for the 3% sales tax in cases where the service either 1) will have multiple points of use in jurisdictions both inside and outside of Maryland, or 2) that the service will be resold in its original form to a separate end user. When claiming these exemptions, the buyer is responsible for providing certification of the exemption to the seller and maintaining adequate records of the transaction or usage of the service. Additionally, the legislative text clarifies that the expanded definition of “taxable services” will be subject to either the reduced 3% sales tax rate, or the standard 6% sales tax rate, whichever is higher. The broad definition of “taxable services” carries uncertainty to its application but is expected to impact Software as a Service (“SaaS”) companies operating in Maryland. Further guidance related to this legislation is expected from the Comptroller’s office.
New Personal Income Tax Brackets for High-Earning Marylanders
In addition to the new “tech tax”, HB 352 introduces new and expanded taxes on individual taxpayers in Maryland. Prior to passage of the 2025 budget bill, the top marginal tax rate for single taxpayers in Maryland was 5.75% on income over $250,000 ($300,000 MFJ). HB 352 introduces two new tax brackets for income of $500,000 – $1 million (6.25% tax rate) and for income exceeding $1 million (6.50% tax rate). The new brackets for joint filers cover incomes of $600,000 – $1.2 million and in excess of $1.2 million.
Capital Gains Surcharge Adds Additional Tax Burden
Finally, the newly passed legislation also introduces a 2% surcharge on capital gains taxed in the state of Maryland. Individuals with federal adjusted gross income exceeding $350,000 will be subject to the new capital gains tax. There are exemptions to this tax for certain specified assets. Additional review and analysis should be conducted to determine if the exceptions apply based on individual facts and circumstances.
Contact Us
Please contact your tax professional or reach out to the GRF Tax Team if you have questions or would like our help analyzing how the newly enacted legislation impacts you or your business.
