Maryland recently adopted a new 3% sales and use tax on a wide range of information technology (IT) services, as well as data and software publishing services, which took effect on July 1, 2025. The Comptroller’s Office has issued detailed guidance that clarifies what’s taxable, how software and SaaS are treated, transition rules for existing contracts, and how buyers can allocate tax using Multiple Points of Use (MPU) Certificates.
What’s Taxed at 3%?
The law expands “taxable services” to align with specific NAICS activity descriptions, not the seller’s chosen NAICS code, so you must look at the service itself. If a service matches the activities in NAICS sectors 518 (data processing, hosting, and related services) and 519 (other information services), subsector 5415 (computer systems design and associated services), or subsector 5132 (software publishing), it’s generally subject to the new 3% rate. The Comptroller emphasizes that taxability depends on the service performed, not the NAICS code on a contract or a seller’s tax return.
The technical bulletin published by the Comptroller’s office includes a non-exhaustive list of taxable services. Illustrative examples include:
- Under NAICS 518: cloud computing (except software publishing and computer systems design), cloud storage, data processing/computer services, IaaS/PaaS, co-location/data center services, web hosting (excluding software publishing), and application hosting (excluding software publishing).
- Under NAICS 519: internet search websites, web search portals, archives/libraries, and specific information services.
- Under NAICS 5415: computer systems design/integration, software consulting, disaster recovery, custom computer software programming/support, custom SEO (excluding hosting/infrastructure support), and related IT consulting/engineering categories.
- Under NAICS 5132: system and application software publishing services, including packaged operating systems and applications.
Key point: A seller that does not identify with one of these NAICS codes must still collect tax if the service it sells falls within these descriptions.
SaaS and Software: 3% vs. 6%
SaaS is treated in two ways, depending on use:
- Enterprise use: If the SaaS (or computer software) is purchased solely for use in an enterprise computer system (whether hosted by the purchaser, vendor, or a third party), it is treated as a taxable service and taxed at 3%.
- Individual/consumer use: If the SaaS is not purchased solely for enterprise system use (e.g., an individual license), it’s a digital product taxed at 6%. Maryland requires applying the higher rate when a sale could be taxed at different rates (so SaaS sold for non-enterprise use is taxed at 6%).
Also important: Maryland repealed the customized software exemption effective July 1, 2025. Customized/configured software and SaaS are no longer exempt on that basis.
Transition Rules: Contracts, Subscriptions, and Change Orders
The Comptroller’s Q&A lays out timing rules to determine whether the 3% applies:
- Subscriptions: Each subscription payment is a separate sale. If the payment date is on or after July 1, 2025, the payment is generally subject to tax. Automatic renewals after July 1, 2025, are treated as separate sales and are taxable.
- Pre-July 1, 2025 fixed-price or milestone contracts: Where parties agreed on terms before July 1, 2025, and payments are tied to deliveries/milestones, amounts due under that contract are generally not subject to the new tax (even if services are delivered after July 1) unless the parties expand the scope via a change order after July 1, in which case the additional scope is a new taxable sale.
- Vendor purchases used to perform a contract: If a prime or subcontractor purchases taxable IT/data services after July 1, 2025, and uses them to fulfill a contract (even for an otherwise exempt customer like the federal government), those purchases are taxable. The resale exemption doesn’t apply if the service isn’t resold in the same form.
Exemptions and Special Carve-Outs
Some exemptions apply specifically to this new tax:
- Sales of cloud computing to a qualified cybersecurity business.
- Sales to a qualified company located in the University of Maryland’s Discovery District in Prince George’s County in connection with quantum computing work.
Buyers must substantiate eligibility; if tax is paid in error, a refund claim may be filed.
Separately, specific nonprofits (holding a Maryland SUT exemption certificate) remain exempt from sales tax on qualifying purchases used in carrying out their exempt purpose; however, vendors must retain the SUTEC number and proper records.
Multiple Points of Use (MPU) Certificates: When and How to Use Them
Maryland introduced an MPU Certificate to address situations where a digital product, digital code, taxable data/IT service, or software publishing service will be used concurrently inside and outside Maryland or resold in its original form to related entities both within and outside Maryland. When a buyer presents a valid MPU Certificate at the time of sale, the seller is relieved of the duty to collect Maryland tax, and the buyer (or related entity, if resold) becomes responsible for remitting Maryland use tax based on the apportioned Maryland use.
Issuing an MPU Certificate
- The buyer must have a Maryland sales & use tax account, request enablement to submit MPU applications, and then request authorization for each transaction (a single certificate can cover an ongoing subscription so long as the Maryland apportionment and terms don’t change). Applications are submitted via MD Tax Connect and must include the vendor, a description of the purchase, the taxable price, and the percentage allocated to Maryland. For resales to related entities, additional details are required.
- The Comptroller’s TB-56 adds practical details: a buyer generally needs a separate MPU Certificate per transaction, but subscriptions can be covered with one MPU if facts remain the same.
Vendor Verification and Acceptance
Vendors must verify an MPU Certificate’s validity (temporarily using the “Verify Sales and Use Tax Registration or Exemption” function on MD Tax Connect and the buyer’s central registration number). They should refuse an MPU Certificate when they know the service will be used entirely in Maryland. Vendors must keep copies for at least four years.
Apportionment Methods
The Comptroller allows reasonable, consistent, and uniform methods, such as:
- Employee count: employees using the product/service in Maryland divided by total employees using it, or
- License count: number of licenses used in Maryland divided by total licenses.
There’s no minimum or maximum Maryland share required, as long as there is some use inside and outside Maryland. Buyers are not required to use an MPU Certificate; they can choose to pay tax on the entire purchase and later seek a refund from another jurisdiction if appropriate.
Five Practical Steps to Get Ready for the New Tax
- Map your services to NAICS activities. Build a matrix of offerings against the Comptroller’s Section IV lists to identify which items are squarely within NAICS 518, 519, 5415, and 5132. This controls taxability, not your internal NAICS self-classification.
- Classify your software/SaaS correctly. Determine whether each SKU is for enterprise system use (3%) or non-enterprise digital product (6%). Update your quoting and invoicing logic to apply the higher rate where required.
- Review contracts and renewals now. Identify subscriptions and automatic renewals scheduled on or after July 1, 2025, and add change-order procedures that account for tax on the expanded scope after that date. Train teams on the special rules for milestone contracts and change orders.
- Decide whether to use an MPU Certificate. For multi-state deployments, establish a standard apportionment method (employee or license-based), request MPU authorization in MD Tax Connect, and put vendor verification steps into your AR/AP playbooks.
- Update purchasing for contractors. Prime/subcontractors should assume that their own purchases of taxable IT/data services after July 1 are taxable, unless resold in the same form. Build this into pricing for exempt end-users.
The Bottom Line
Maryland’s new framework shifts the focus to what you do, not how you’re labeled. Many cloud, hosting, integration, and publishing services now incur a 3% state sales/use tax, while SaaS services can be taxed at 3% or 6%, depending on the use. The MPU Certificate rules are a meaningful tool for multi-jurisdictional deployments, but they require setup, documentation, and consistent methods to work smoothly.
Connect with Thompson Tax today and remain compliant with ease. We’re your Trusted Tax Advisors, ready to guide you every step of the way.