Effective July 1, 2025, Maryland has expanded its sales and use tax base to include a broader range of digital services. The most notable changes impact the taxability of software as a service (SaaS), technology information and data services, webhosting, and website development services which were previously exempt in many business to business (B2B) transactions. In addition, custom software, which was previously exempt is now subject to sales tax. The Maryland Comptroller (Comptroller) has issued Technical Bulletin No. 56, Sales and Use Tax on Data or Information Technology Services and Software Publishing Services: Questions and Answers to provide clarity as to the application of these law changes.

Under prior law, Maryland had expanded the sales tax base by commencing the taxation of digital products (Including software) and digital code. Digital products under the law include electronic media involving audio, video, and printed works. The definition also includes canned software and SaaS. The prior law had provided for an exemption for the sales and/or license of digital products and software to commercial users that was housed or maintained on an enterprise server, cloud server, or end user’s computers (i.e., B2B transactions).

SaaS and related digital services now taxable at 3% for B2B transactions

Maryland now imposes 3% sales and use tax on SaaS and related digital services. This applies to services that fall under the following 2022 North American Industrial Classification System (NAICS) specific industry categories:

• 518 - Data processing, hosting and related services
• 519 - Web search portals, libraries, archives, and other information services 
• 5132 - Software publishers
• 5415 - Computer systems design and related services

Businesses must evaluate the nature of the service provided or purchased to determine if it aligns with one of these classifications and not just follow the classification the business uses as its primary business activity for federal or state tax return purposes.

Although Maryland has revised the sales tax treatment of digital products (including software) and SaaS for B2B transactions subject to the reduced 3% services tax rate, it has not made any changes to the treatment of SaaS or software sales to individual end use consumers. These transactions continue to be subject to the state’s standard 6% sales and use tax rate, consistent with the statute in place prior to July 1, 2025.

Multiple Points of Use Certificate

When a buyer purchases one or more of the digital products referenced above (such as data services, SaaS or information technology solutions) and the usage will occur both within and outside Maryland, the purchaser may issue a Multiple Points of Use (MPU) certificate. An MPU certificate may also be issued when the digital product or service is intended for resale to an affiliated group member. In completing the MPU, the purchaser can apply a reasonable method of apportionment to determine the taxable portion attributable to Maryland users. The Technical Bulletin No. 54 Multiple Points of Use Certificates (MPU) provides examples of applying such apportionment methods. Upon receipt of a valid MPU, the vendor is relieved of the obligation to collect and remit sales tax on the transaction. In such cases, the responsibility to self-assess and remit the appropriate use tax shifts to the purchaser. 

The bulletin provides guidelines in which a buyer must first apply with the Comptroller for authorization to issue an MPU to a seller before its issuance for a given transaction. 

However, for a subscription, a buyer may issue a single MPU Certificate to apply to all future charges and automatic renewals of the subscription where the Maryland apportionment remains the same.

It is important to note that issuing an MPU certificate is optional. If the buyer does not provide an MPU certificate and the product or service is taxable and sourced to Maryland, the vendor is required to charge Maryland sales tax on the full taxable amount of the sale. 

What does CohnReznick think?

Taxpayers engaged in SaaS or similar digital services – particularly those operating within the NAICS sectors outlined – should exercise heightened vigilance, as these activities may now be subject to Maryland sales tax. A careful analysis is essential to determine applicability, and consultation with a tax advisor is strongly recommended to establish compliance.