Since July 1, 2025, Maryland has charged a 3% sales and use tax on a long list of business technology services. Cloud hosting, IT consulting, custom software, website design, and most business software subscriptions are now taxable.
A year and a half in, many small businesses are still getting it wrong. Some are paying tax they could legally apportion. Others are buying from out-of-state vendors who never charge it, which means the business may owe the tax itself. If you are building your 2027 budget this month, here is what the tax covers, what it costs, and how to book it.
What the 3% tax covers.
The law ties the tax to federal industry codes (NAICS). If a service falls in one of these four groups and is sold for business use, it is generally taxable at 3%:
| NAICS group | What it includes |
|---|---|
| 518 Data processing and hosting | Cloud storage, web hosting, infrastructure and platform services (IaaS, PaaS), data entry |
| 519 Information services | Internet search portals, online archives and libraries |
| 5415 Computer systems design | IT consulting, managed IT services, custom programming, custom website design |
| 5132 Software publishing | Packaged and subscription software (SaaS) used by a business |
Custom software used to be exempt in Maryland. That exemption was repealed on the same date, July 1, 2025. A custom app or a new website built by a developer is now taxable.
The Comptroller’s guidance is clear on one point: each service is judged on its own. A vendor that sells you hosting, design, and a support plan may charge tax on all three, or on some of them, depending on how each one is classified.
3% for business use, 6% for personal use.
The 3% rate applies when a business buys the service for business use. Software and SaaS bought for individual, personal use are taxed as digital products at Maryland’s standard 6% rate.
In practice, that means two things for owners. Make sure the account is in the business name, billed to the business. And do not run personal subscriptions through the company card. They complicate the books and can be taxed at the higher rate.
What is not taxed.
The data processing category specifically leaves out payroll services and financial transaction processing. Your payroll provider’s processing fees and your card processor’s fees are not part of this tax.
A few narrow exemptions also exist, such as cloud computing sold to qualified cybersecurity businesses and certain sales tied to the University of Maryland’s Discovery District. Qualifying nonprofits with a Maryland exemption certificate may also be exempt. For most small businesses, though, assume your tech stack is taxable unless your CPA confirms otherwise.
What it costs, in dollars.
Three common examples for a Baltimore small business:
- Managed IT support at $1,500 a month. Adds $45 a month, or $540 a year.
- A new $12,000 website build. Adds $360 to the project.
- A project management tool at $40 per user, for 20 users. That is $800 a month, so the tax adds $24 a month, or $288 a year.
None of these numbers is large on its own. Add hosting, accounting software, CRM, cloud storage, and an IT contractor, and the total adds up fast. That belongs in the budget as its own line, not as noise in “software.”
Want to see what clean monthly books look like?
See the monthly reporting package we deliver to Maryland small business clients, with every expense category reconciled and explained.
Get the sample packageFive steps to get your books right.
1. List every tech vendor you pay.
Pull a vendor report for the last 12 months and filter for software, hosting, IT, and web services. That list is the starting point for everything else.
2. Check each invoice for Maryland tax.
Look for a 3% line on invoices dated July 1, 2025 or later. Some vendors charge it and some do not, especially vendors based outside Maryland. Mark each vendor as charging, not charging, or not taxable.
3. Handle vendors that do not charge it.
When a vendor does not collect Maryland tax on a taxable service you use in Maryland, the buyer generally owes use tax on it. That is reported to the Comptroller on your sales and use tax return. If you do not have a Maryland sales and use tax account, talk to your CPA about whether you need one.
4. Apportion services used in more than one state.
If you have staff outside Maryland, you may not owe Maryland tax on the full price. Maryland allows a Multiple Points of Use (MPU) Certificate. You give it to the vendor, then pay Maryland tax yourself on the Maryland share, based on a consistent method like the share of users or employees in Maryland. A firm with 10 of 20 software seats in Virginia could cut its Maryland tax on that tool in half. You need a Maryland sales and use tax account to use the certificate.
5. Book the tax in its own account.
Create a “Sales and use tax paid” expense account, or split the tax line into it when you code vendor bills. If you self-assess use tax, set up a liability account for the amount owed and clear it to zero when you file. This makes the tax easy to see, easy to budget, and easy for your CPA to review.
If you sell tech services, you collect it.
The rule cuts both ways. If your Maryland business does IT consulting, managed services, web design, hosting, or software development for business clients, you are likely now a seller of a taxable service. That means registering for a Maryland sales and use tax account, charging 3% on taxable work, and filing returns.
Two details matter for sellers. If a client hands you an MPU Certificate, you can stop charging tax on that service, but you cannot accept one for a service used entirely in Maryland. And services you buy to resell in the same form can be bought tax-free, but services you use to deliver your own work are taxable to you.
If you sell a mix of taxable and non-taxable work, such as bookkeeping plus IT setup, break it out on your invoices. Clean invoices make the tax easy to defend in an audit.
Will the tax be repealed?
Maybe, but do not budget for it. Maryland Bay News reported in September 2026 that the tax brought in $112.8 million in fiscal 2026, far below the roughly $500 million originally forecast. The Maryland Chamber of Commerce is pushing for repeal.
No repeal or amendment passed in the 2026 session, and the tax is still in effect. Plan your 2027 numbers with it included. If the General Assembly changes the law, removing a line from a budget is a lot easier than finding money you did not plan for.
Fold it into year-end.
The best time to clean this up is during your year-end close. Our year-end close checklist walks through the rest of that process, and our 12-month rolling forecast post shows how to keep a line like this current all year. For filing dates, see our Maryland small business tax deadlines.
How we help.
At RS Accounting Services we handle bookkeeping for small businesses across Baltimore and Maryland. For the 3% tech tax, that means reviewing your vendor list, flagging invoices with and without Maryland tax, setting up the right accounts, and giving your CPA (or our tax partner Veritax USA in Bethesda) a clean schedule to work from.
If you are not sure how much of this tax you are paying, or should be paying, call us at (410) 694-7230 or book a free call below.
This article is general information, not tax advice. Talk to your CPA about how these rules apply to your business.