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Starting July 1, 2025, Maryland will implement a reduced 3% sales tax on a broad range of digital services, including software, digital publishing, and data processing, under the Budget Reconciliation and Financing Act (HB 352).
This marks a significant shift from Maryland’s attempts to apply the full 6% standard sales tax rate to digital services efforts blocked in court in 2022 for allegedly violating federal law.
Background: A Legal Tug-of-War
In 2022, a Maryland state court struck down the previously proposed 6% digital tax, ruling it violated the Internet Tax Freedom Act, the Commerce Clause, and even the First Amendment. That decision halted the original implementation of a tax that had been in effect since 2021.
The blocked tax had applied to:
- Streaming services (music and video)
- Ringtones
- E-books and audiobooks
- Online newspapers
- Cable, satellite, and pay-per-view TV
Despite legal setbacks, Maryland lawmakers have returned with a reduced rate and narrower scope, potentially sidestepping past legal concerns while boosting state revenue.
Who’s Affected
From July, the 3% rate will apply to:
- Cloud-based software
- Digital publishing
- Digital products and services
- Data hosting and processing
This will impact SaaS providers, media publishers, and tech platforms doing business in the state. Companies may need to update billing systems, adjust pricing, and recalculate compliance risks.
Advertising Still Taxed Separately
This change does not affect Maryland’s separate tax on digital advertising revenues, introduced in 2021. That levy applies to companies with over $1 million in annual revenue in Maryland and has been the subject of ongoing litigation and business backlash.
National Implications
Maryland’s move aligns it with the ~40 U.S. states already applying sales tax on digital services. However, the reduced rate makes it an outlier and a potential model for other states trying to balance revenue generation with legal compliance and tech sector competitiveness.
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