Maryland’s New SaaS Sales Tax: What SaaS and Tech Companies Need to Know

Here at Miles Consulting Group, we understand how important it is for SaaS and technology companies to stay ahead of evolving tax regulations. Maryland’s new 3% sales tax on Software as a Service (SaaS) and related digital services, effective July 1, 2025, is a significant change that could impact your business in multiple ways. This article will help you understand what’s changing, why it matters, and what steps you can take to stay compliant with confidence.

A Modern History of SaaS Sales Tax Compliance in Maryland

Maryland’s taxation of SaaS and digital services has shifted considerably in recent years. In 2021, Maryland expanded its sales tax to include digital products and services sold to individual consumers. However, SaaS transactions sold to business users, particularly in enterprise environments, often remained exempt from tax.

With the passage of Maryland HB 352, Maryland is reinstating a sales tax on SaaS, now at a 3% rate, starting July 1, 2025. While the state has not explicitly detailed its motivations, this move aligns with a broader trend among states to modernize tax codes to include more digital services. This update to the digital services tax in Maryland  highlights the state’s focus on ensuring its tax revenue keeps pace with the growth of the digital economy.

What’s Changing in 2025?

Starting July 1, 2025, Maryland will apply a 3% sales and use tax to:

• Software as a Service (SaaS)
• Data processing and web hosting
• Custom software development and IT consulting
• System and application software publishing

Previously, some SaaS transactions used solely for business-to-business enterprise purposes were often exempt. Now, these transactions will be taxed at the new 3% rate. SaaS sold to consumers or non-enterprise uses will continue to be taxed at the existing 6% rate.

Understanding these SaaS sales tax compliance requirements is essential for businesses operating in the state.

Nexus and Compliance Considerations

If your SaaS or technology company is selling into Maryland, it is essential to assess whether you have sales tax nexus in the state. Generally, Maryland requires you to collect and remit sales tax if your business:

• Has a physical presence in Maryland, such as employees or offices
• Exceeds $100,000 in annual sales to Maryland customers or completes 200 or more separate transactions in the state

Even without a physical presence, crossing these nexus thresholds means you must collect and remit the 3% SaaS tax on applicable services. This is a key aspect of Maryland sales tax nexus that SaaS and tech companies should not overlook.

Real-World Scenarios for SaaS and Tech Companies

At Miles Consulting Group, we assist many SaaS and technology clients with sales tax compliance across the country, including navigating the digital services tax in Maryland. Here are scenarios that may apply to your business:

Scenario 1:

A SaaS company that primarily serves clients outside of Maryland sees increased demand from Maryland enterprises. As sales exceed $100,000 or 200 transactions annually, the company must register and collect the 3% SaaS tax.

Scenario 2:

A technology firm that traditionally offered hardware now bundles SaaS subscriptions as part of its product suite. While the hardware may already be taxable, the SaaS component requires separate attention under Maryland’s new 3% SaaS tax rules 2025.

Scenario 3:

A SaaS provider has long-term contracts signed before July 1, 2025, and assumes these are exempt. However, periodic payments due after July 1 will likely be considered separate transactions and therefore taxable.

These scenarios highlight the importance of reviewing your business model, customer base, and contracts to understand your Maryland SaaS tax obligations.

Steps to Prepare and Stay Compliant

Managing Maryland’s new SaaS sales tax requirements does not have to be overwhelming. Here’s how to get started:

1. Conduct a Nexus Review: Assess sales and customer base to determine if you exceed Maryland’s thresholds for sales tax nexus.
2. Analyze Taxability: Review your offerings to understand which services are subject to the 3% SaaS tax rate and which remain at 6%.
3. Review Contracts: Identify any periodic payments or renewals that may become taxable after July 1, 2025.
4. Update Billing and ERP Systems: Ensure they can handle multiple tax rates and apply the correct charges.
5. Seek Expert Advice: At Miles Consulting Group, we are a little obsessed with sales tax and enjoy helping SaaS companies stay compliant with digital services tax regulations. If you do not have a dedicated sales tax expert, now is the time to bring one on board.
6. Collect and Store Exemption Certificates: Maintain records to support any tax-exempt transactions.

Summary Table: Maryland’s New SaaS Tax

Use this table to identify risk areas and opportunities to refine your compliance processes:

Implications for Your Business

Maryland’s new 3% SaaS tax represents a significant change in how the state approaches the taxation of digital services. For SaaS and technology companies, this is more than just another tax; it may affect your sales strategy, invoicing processes, and customer relationships. Taking the time to understand and prepare for these changes now can help you avoid surprises and remain compliant with Maryland SaaS tax regulations.

How Miles Consulting Group Can Support You

At Miles Consulting Group, sales tax is our specialty. We help SaaS and technology companies stay up-to-date with evolving sales tax compliance requirements. Our team can help you:

• Evaluate your nexus status and registration requirements
• Analyze product and service taxability
• Review and update contracts to ensure compliance with Maryland’s new SaaS sales tax
• Implement systems and processes to handle tax calculations and filings efficiently
• Provide ongoing support so you are always prepared for changes in SaaS tax rules

If your business needs support with Maryland’s new 3% SaaS tax or any other sales tax compliance challenges we would love to assist you. Contact us at info@milesconsultinggroup.com