Maryland’s New Tech Tax
On July 1, 2025, a new tax quietly went into effect in Maryland — one that impacts nearly every business across the state. The 3% sales and use tax on certain IT services, enacted under the Budget Reconciliation and Financing Act of 2025, marks a notable shift in how services are taxed in the state. Whether you’re a provider or a client, this change may have caught you by surprise. Here’s what you need to know.
What Is the IT Tax?
As part of the 2025 legislative session, the Maryland General Assembly passed the Budget Budget Reconciliation and Financing Act of 2025, which includes several updates to the state’s tax code. Among them: a requirement that certain businesses begin collecting a 3% sales and use tax on select information technology services starting July 1.
The IT tax specifically applies to:
Data or information technology services (NAICS codes 518, 519, and 5415)
System software or application software publishing services (NAICS code 5132)
This means if your business provides or uses services related to IT systems, software publishing, data storage, cloud services, or custom programming, those labor and service charges are now subject to this new tax.
For more technical guidance on how the tax applies, Maryland’s Comptroller has released a helpful FAQ document.
What This Means for IT Clients and IT Providers
For clients, this means a direct increase in IT costs. Any services that fall within the defined NAICS categories — especially in contracts that include time and materials — will now carry an extra 3% tax on labor. Whether you’re renewing an existing support contract or initiating a new project, the new rate applies moving forward.
This tax is not optional for providers. Under the new law, IT service providers are required to collect and remit the 3% sales and use tax on applicable services to the state. That means providers must adjust their invoicing and pricing structures to reflect this additional charge — not as a business decision, but as a compliance requirement. If you see new line items or slight increases on future invoices, know that these adjustments are most likely tied directly to the state mandate, not to provider discretion.
For IT providers, there’s a shared sense of concern and even frustration. Many in the industry feel unfairly singled out. However, the fact that IT was the sole service sector to make it into the final legislation reflects just how critical and universal IT services are to today’s business operations. Every business, regardless of size or specialty, benefits from some level of IT services.
Still, this change sets a precedent. Taxing labor-based services is no longer off-limits, and this could be a sign of broader changes to come in Maryland and other states exploring similar legislation.
Why Business Owners Should Pay Attention — and Speak Up
The IT tax isn’t just a policy footnote but a signal that legislative priorities are shifting, and that even long-held exemptions are now up for reconsideration. The implications stretch beyond just IT services.
That’s why it’s more important than ever to stay plugged into your business community, your industry networks, and your local chamber of commerce. These groups give business owners and service providers a seat at the table plus the opportunity to advocate for smart, balanced policies before they’re written into law. And when changes do happen, these organizations can help you stay informed and adapt quickly.
No one likes unexpected costs, especially when they come in the form of new taxes on essential services. But this new IT tax is a reminder that the business landscape is constantly evolving, and legislation can shift quickly in response to economic pressures.
This new IT tax is a reminder that the business landscape is constantly evolving, and legislation can shift quickly in response to economic pressures.
The best way to stay ahead? Stay informed, stay connected, and stay engaged.
Whether you’re a business owner, IT provider, or advocate, your voice matters. We encourage you to join your local chamber, stay active in industry groups, and be part of the conversation. As a business community, we’re stronger and more influential when we speak with a united voice.
If you’re a C-Cured customer and want to discuss what this tax means for your business, contact us. We’re happy to help.
