The Maryland General Assembly recently passed the Budget Reconciliation and Financing Act of 2025. This new bill has significant tax implications for Maryland business owners and individuals.
Let’s review the legislation’s provisions that will have the greatest impact on Maryland taxpayers starting in 2025.
The "Tech Tax"
Currently, Maryland has a 6% sales tax rate on the sale of tangible personal property. The state has now expanded the sales tax to include a 3% tax on data information technology services and system software, or application software for public services.
When This new category of sales tax, known as the “tech tax,” will take effect on July 1, 2025. Businesses that fall under the following industry classifications will need to collect and remit sales taxes for their “technology services.”
- NAICS 518 — Data Processing, Hosting & Related Services (e.g., data processing services, web hosting services, data backup and computer data storage services, server management and video streaming)
- NAICS 519 —Other Information Services (e.g., online directories, web search portals, news syndicates, and internet publishing and broadcasting)
- NAICS 5415 — Computer Systems Design & Related Services (e.g., IT systems integration and consulting, custom software development firms, computer programming services, managed IT service providers and software installation costs)
- NAICS 5132 — Software Publishers (e.g., system and application software publishers, and designing, documenting and installing supporting software)
You can find full descriptions of NAICS codes here.
It is important to note that:
- If any of these service providers previously fell under the 6% sales tax rate, they will not be eligible for the reduced 3% sales tax rate.
- This tax is only applicable to customers who live in Maryland. If a company is headquartered in Maryland but their customers live in another state, those out-of-state customers are not subject to the tech tax.
Additionally, if the buyer of the above technology services provides the seller with a Multiple Points of Use Certificate at the time of purchase, indicating the service will be used in multiple states, the responsibility for collecting and remitting the tax shifts from the seller to the buyer. The buyer is only responsible for remitting the tax for the portion of purchased services used in the state of Maryland.
"Tech Tax" Exemptions
As with any new legislation, there are a few exceptions. For the tech tax, the “sale of cloud computing services” to a “qualified cybersecurity business” — defined as a for-profit entity engaged in developing cybersecurity technologies or providing cybersecurity services — is exempt. The other exception is for sales made to or by companies working in the University of Maryland Discovery District in Prince George’s County under contract with the Applied Research Laboratory for Intelligence and Security.
New Income Tax Brackets
Maryland added two new tax brackets, which apply to tax years beginning after December 31, 2024:
- An increase from 5.75% to 6.25% tax rate for individuals earning $500,001 to $1,000,000 and joint filers earning $600,001 to $1,200,000
- An increase from 5.75% to 6.5% tax rate for individuals with income exceeding $1,000,000 and joint filers exceeding $1,200,000
Capital Gains Tax
For any individual with an adjusted gross income of $350,000 or more, a 2% surtax will be charged on capital gains.
However, certain assets like property used in a trade or business whose cost is deductible under Section 179 are excluded from this tax. Homeowners who sell their primary residence for less than $1.5 million are also exempt.
Itemized Deductions
Allowable itemized deductions will be reduced by 7.5% of an individual’s federal adjusted gross income exceeding $200,000.
If you are interested in reading the entire Budget Reconciliation and Financing Act of 2025, you can find it here.
Need Help?
This act will have sweeping effects on Maryland taxpayers, with the greatest impact on technology providers and high net worth individuals. If you need assistance navigating the complexities of these new laws, contact us online or call 800.899.4623.
