Key Takeaways
- Three percent sales tax now applies to sales of technology-related services effective July 1, 2025
- New income tax brackets for individuals with income over $500,000 effective July 1, 2025
- Capital gains surtax of two percent for individuals earning over $350,000 effective July 1, 2025
The Maryland Budget Reconciliation and Financing Act of 2025 creates a new 3% sales tax on technology-related services, in addition to making other income tax changes, impacting a multitude of businesses and individuals. Here’s what you need to know.
Taxable Services
On May 20, Maryland enacted H.B. 352, which introduces a 3% sales tax on a range of technology-related services. The bill expands the definition of "taxable services" to include several additional categories under the North American Industry Classification System (NAICS).
The additional NAICS categories includes:
- NAICS 518 – Data Processing, Web Hosting, and Related Services
- NAICS 519 – Web Search Portals, Libraries, Archives, and Other Information Services
- NAICS 5415 – Computer Systems Design and Related Services
- NAICS 5132 – Software Publishers
The new tax takes effect on July 1, 2025.
Key Implications to Consider
The new 3% sales tax applies to business-to-business transactions, which will impact both sellers with Maryland-sourced sales and buyers using those services within the state. Under the bill, “the retail sale of a digital code[or], digital product, or taxable service . . . shall be presumed to be made in the state in which the customer tax address is located.” The bill includes guidance on how to determine the customer tax address in situations where it may not be straightforward.
Income Tax Changes
Changes to income tax rules include:
- Changes to individual income tax rates and brackets including the addition of two higher tax brackets of 6.25% on income over $500,000 and 6.5% on income over $1,000,000 (the current highest rate is 5.75%), effective July 1, 2025, and applicable to all taxable years beginning after December 31, 2024;
- Increase of the Maryland standard deduction to $3,350 for individuals and $6,700 for married couples filing jointly, effective July 1, 2025, and applicable to all taxable years beginning after December 31, 2024;
- The tax base for resident members of a pass-through entity making a pass-through entity tax election is “the portion of a pass-through entity’s income . . . calculated without regard to any deduction for taxes based on net income that are imposed by any state or political subdivision of a state, that is equal to the member’s distributive or pro rata shares of the pass-through entity”, effective January 1, 2026 and applicable to all taxable years beginning after December 31, 2025; and
- A capital gains surtax of 2% on capital gains for those with adjusted gross income over $350,000, including a long list of specific exemptions, effective July 1, 2025, and applicable to all taxable years beginning after December 31, 2024.
What do I need to do?
Businesses should review the new sales tax on technology-related services and evaluate its impact on their transactions to ensure compliance by July 1. Individuals should review their tax situation and determine if they need to make changes to their estimated payments.
Contact the Eide Bailly State & Local Tax Team to learn more.
