Sales Tax Update - June 2025

Maryland Imposes New 3% Sales Tax on List of Software, IT and Data Services

On May 20, 2025 Governor Moore signed House Bill 352, enacting a 3% tax on a long list of software, data and IT services.  Recall that in 2021, Maryland expanded its sales tax to include digital products, which its defined broadly to include computer software regardless of method of delivery and certain business to business services. Excluded from taxable software requires configuration (i.e., does not operate immediately “out of the box”) and customized software.  In July 2022, Maryland effected additional sales tax legislation to exclude from sales tax software licensed solely for commercial purposes in an enterprise system (eg., B2B SAAS) and digital products in which the purchaser maintains a copyright or intellectual property interest, such as advertising and marketing content.   

Maryland’s new 3% sales tax applies to business and consumer purchases of various cloud-based services, website design and hosting services, and all forms of software publishing, data processing and information services.  As such, this new sales tax would apply to most business sales and purchases of software, data processing and storage services, information services, IT support, consulting, design, programming and installation services.  The new tax provides that if a sale may also be subject to sales tax at the higher 6% rate, the higher rate applies.  Also enacted is an exemption for certain purchases by qualifying cybersecurity businesses, elimination of the exemption for custom software, and the ability of the purchaser to issue a “multiple points of use” certificate when the purchaser knows the taxable purchase will be used in multiple tax jurisdictions.”   The new tax is effective July 1, 2025, and the Comptroller is charged with defining the specifics of who, what, when, where and how the tax will be imposed.  The Comptroller’s draft regulations may be found here.

Washington Expands Sales Tax to Cover IT, Software Customization, Data Processing and Digital Advertising services 

On May 20, 2025, Washington State Governor Bob Ferguson signed several tax bills that expand the Washington sales tax base and B&O tax base and rates.  Specifically, SB 5814 expands the sales tax base to additional services, including custom software, customization of prewritten computer software, information technology (IT) consulting, training and support, custom website development, data processing and data entry, digital and nondigital advertising services, live, in-person and electronic presentations, security and investigation services, and temporary staffing services, except for qualifying hospitals.  The sales tax base increase takes effect October 1, 2025. [see SB 5814]. Many of these sales are to be classified under the retailing classification for B&O tax purposes.  Lastly, monthly filers with $3,000,000 or more of taxable retail sales during calendar year 2026 must make a prepayment of 80% of the state sales tax collected during the June 2026 reporting period. This payment is due by June 25, 2027. Any corrections to the amount paid must be made on the regularly filed tax return due on or before July 26, 2027.  Failure to make the proper remittance is subject to 10% penalty.

Related legislation imposes an additional B&O tax surcharge of 0.5% on gross receipts over $250 Million, effective January 1, 2026 through December 31, 2029.  Also, the B&O tax rates for various retail and wholesale activities, from 0.471% and 0.484% to 0.5%, effective January 1, 2027.  And service and other activities B&O tax rate for businesses and their affiliates with gross income of over $5 million taxable under this classification from 1.75% percent to 2.1%, effective October 1, 2025.  [HB 2081]. HB 2081 also increases the advanced computing surcharge from 1.22% to 7.5%, with an annual cap increased from $9 million to $75 million, effective January 1, 2026. 

Learning From Other Taxpayers

When you register in a new state, and you are using automated sales tax tools (Hint: if you’re not using one, you should be) make certain to

1. turn on the tax in your software as of the account effective date, with the correct tax type to be collected for the sales tax type for which you registered, and 
2. set the filing calendar to file the correct sales tax form for the tax type with the filing frequency assigned by the state to your account. 

With almost guaranteed certainty, when we review a new client’s sales tax software settings, we find several of the following:

1. the company registered for an account and set up a return, but forgot to turn the tax on in the software, so they are filing a return but are not collecting the tax from the customer – a problem;
2. the company turned on the tax in the software, but did not register for an account, so they are collecting the tax from the customer, but are not filing a return – a big problem;
3. the company registered for an account, and turned on the tax on in the software, sbut forgot to set up a return, so they are collecting the tax from the customer, but not filing a return – a bigger problem;

Each of these scenarios are problematic, because the company is exposed for taxes it is paying out of pocket, or that it is collecting and not remitting.  Under the 3^rd common scenario, being that the company is registered, voluntary settlement options are further restricted.  Simple things that cause recurring, systemic mistakes with drastic consequences… completely avoidable.

Moral of the story: Have a certified sales tax software expert and advisor review your sales tax software and filing history, before the state does.  We address, resolve and fix each of these scenarios – and more – by proactively reviewing our clients’ sales tax software settings, and then managing the compliance process for them.