On July 1, 2025, Maryland started charging sales and use tax on software and IT services. The rate is 3%. It came out of the Budget Reconciliation and Financing Act of 2025 (House Bill 352), which the governor signed on May 20, 2025 as Chapter 604. Most owners found out when an invoice went up.
What it covers is broader than it sounds. The law reaches data services, information technology services, and software publishing services described in NAICS sectors 518 and 519 and subsectors 5132 and 5415. In plain terms: cloud storage, web hosting, data processing, computer systems design, IT consulting, and software subscriptions. Your practice management software, your backup service, your outside IT provider. All of it.
There is no business exemption. The Comptroller's guidance is direct on this. The tax applies whether the buyer is a person or a company, and there is no exemption for services one affiliated company sells to another, even at cost. The old exemption for customized software was repealed on the same date.
Run the arithmetic on your own spend. A business paying $3,000 a month across software subscriptions, hosting, and IT support pays roughly $90 more a month, or about $1,080 a year. Not ruinous. Also not zero, and it lands on a line most owners never review.
The rate depends on how the software gets used. SaaS bought for use in a business computer system is taxed at 3%. The same product bought for individual use counts as a digital product and is taxed at 6%. When both rates could apply, Maryland applies the higher one.
There is one timing quirk worth money. Contracts signed before July 1, 2025 are not subject to the tax, even when the payments and the delivery happen later. Subscriptions work the other way. The Comptroller treats each subscription payment and each automatic renewal as a separate sale, so a monthly plan you started in 2024 is taxable on the payment you made this month. A change order that expands the scope of an old contract counts as a new sale too.
Virginia, Maryland, and DC give three different answers here, which matters if you operate across the DMV. Virginia takes the opposite position from Maryland: software delivered electronically, with no physical media involved, is generally not taxable there under Virginia Code 58.1-609.5(1) and a long line of rulings from the Tax Commissioner. DC taxes digital goods and software at its full 6% rate. So the same subscription can carry three different costs depending on where it gets used. An owner with a location in Bethesda, one in Arlington, and one in DC is looking at three answers on one invoice.
Maryland has a mechanism for that. If you know at the time of purchase that a service will be used both inside and outside Maryland, you can give the vendor a Multiple Points of Use certificate and apportion the taxable share, by headcount or by license count. That shifts the tax obligation from the vendor to you, and it requires a sales and use tax account plus authorization from the Comptroller. Worth the paperwork when the spend is real.
Three things to do this month. First, pull twelve months of software, hosting, and IT invoices and total them, so you know the size of the exposure. Second, check the invoices dated after July 2025 for a 3% line and confirm your vendors are charging it correctly, because some are charging on services that do not qualify. Third, if any of that software gets used outside Maryland, look at whether a Multiple Points of Use certificate is worth filing for.
A 3% tax on one expense category will not change your year. Missing it for three years while your software spend grows quietly is a different story. This is the kind of thing that shows up in a monthly review and never shows up in an annual tax return.
We work with practice owners and small business owners across Virginia, Maryland, and DC, which means three sets of state rules on one set of books. If your software and IT line has not been looked at since last summer, reach out through the contact page and we will go through it with you.
Sources: Comptroller of Maryland, Technical Bulletin No. 56, Sales and Use Tax on Data or Information Technology Services and Software Publishing Services, revised June 30, 2025 (marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/technical-bulletins/tb-56.pdf). Maryland General Assembly, House Bill 352 of the 2025 Regular Session, Budget Reconciliation and Financing Act of 2025, Chapter 604 (mgaleg.maryland.gov). Comptroller of Maryland, Technical Bulletin No. 54, Multiple Points of Use Certificates. Virginia Department of Taxation, Rulings of the Tax Commissioner on electronically delivered software, and Virginia Code 58.1-609.5(1) (tax.virginia.gov). DC Office of Tax and Revenue, Taxation of Digital Goods in the District of Columbia (otr.cfo.dc.gov).