Maryland’s House Bill 0352 (HB0352), enacted as part of the state’s Budget Reconciliation and Financing Act (BRFA), introduces a new 3% sales and use tax on a wide range of digital and information services. This change, effective July 1, 2025, is part of a broader effort to modernize the state’s tax base and address a projected $3 billion budget shortfall.
What’s Covered?
The new tax broadens the tax base and introduces a reduced sales tax rate to services described under the following North American Industry Classification System (NAICS) codes:
- 5132: Software Publishing (System and Application Software)
- 518: Data Processing, Hosting and Related Services
- 519: Other Information Services
- 5415: Computer Systems Design and Related Services
This new tax also imposes the reduced rate on previously exempted items. For example, generally, SaaS is taxed at the full rate (6%); however, the state provides an exemption for SaaS licensed solely for commercial purposes in an enterprise computer system. Under the new bill, SaaS used for that purpose is now taxable at the reduced rate.
Timing and Implementation
- Contracts and installment sales entered into before July 1, 2025, are generally not subject to the new tax.
- Subscription payments due after July 1 are taxable, even if the subscription began earlier.
- Draft regulations are expected July 11, 2025, following emergency guidance issued on June 6 and a technical bulletin published June 10.
The state has also clarified how the tax applies to subscription, installment and credit sales, with examples based on contract and payment dates.
Exemptions
The following are exempt from the new 3% tax:
- Sales to or by qualified cybersecurity businesses
- Sales to or by companies located in the University of Maryland’s Discovery District
- Sales where the buyer provides a Multiple Points of Use (MPU) certificate, allowing for apportionment across jurisdictions
Buyers using MPU certificates must apply consistent and reasonable methods for apportioning use. If services are resold to an affiliated entity, the reseller may be responsible for the Maryland portion of the tax if the related entity does not pay.
Additional Tax Changes in HB0352
HB0352 also includes several other tax and fee changes that may impact both businesses and individuals:
Capital Gains Surcharge
A 2% surtax on net capital gains for individuals with federally adjusted gross income (AGI) over $350,000. Certain gains are excluded, such as sales of primary residences under $1.5 million and assets held in Individual Retirement Accounts (IRAs) or cash.
Personal Income Tax
New brackets for high earners, including:
- 6.25% for individuals earning $500,001 – $1 million
- 6.5% for individuals earning over $1 million
- Phaseouts for itemized deductions begin at $200,000 in federal AGI
Excise and Sales Tax Increases:
- Vehicle excise tax: 6% → 6.5%
- Cannabis sales tax: 9% → 12%
- Sports betting tax: 15% → 20%
- Vehicle emissions inspection fee: $14 → $30
- New short-term vehicle rental tax: 3%
- New tire fee: $5 per tire
Repealed Exemptions
Snack foods sold in a vending machine, certain bullion and coins, and photographic materials used in printing.
Your Guide Forward
Maryland’s tax changes bring new considerations for businesses offering digital services, as well as for buyers navigating updated invoicing and compliance requirements. Individuals may also see changes in their tax planning due to new income brackets and capital gains rules.
Cherry Bekaert’s Sales & Use Tax team is here to help you understand how these changes apply to your operations, billing practices and tax planning. Whether reviewing contracts, evaluating Multiple Points of Use certificates, or preparing for regulatory updates, our team can help you move forward with clarity and confidence.
