Maryland’s fiscal 2026 budget introduces a new 3% sales tax on data and information technology services, effective July 1, 2025. This legislation expands the definition of taxable services in the state to include various technology-related offerings, such as cloud storage and IT consulting. Reporting leading up to the passage also noted cloud-based platforms and software as a service tools.
WUSA9 looked at the impact, and Brian Vaughn, director of Technology Transition Paradigm, noted that the tax will cover essential IT services such as data storage, website maintenance, and cybersecurity. He estimates that businesses could see an increase of $350 to $400 a month on average for services that cost around $10,000. Andy Fraser, director of Sandglass, expressed concerns that the tax might discourage innovation in Maryland, as businesses may consider relocating to neighboring states with lower tax burdens. Small businesses that rely on these services will likely pass the increased costs on to consumers.
Why do we care?
As if it wasn’t immediately obvious..
Maryland’s new 3% sales tax on data and IT services, effective July 1, 2025, is more than a regional policy shift—it’s a signal of how states may increasingly treat digital infrastructure as taxable utility. For MSPs and IT vendors, this matters on several fronts:
- Precedent Setting: If Maryland succeeds without significant pushback or economic fallout, other states may follow. Expect scrutiny of how “IT services” are defined, especially if interpretations expand beyond infrastructure to include managed services and SaaS platforms.
- Margin Compression: With estimates like $400/month on $10K services, MSPs operating in or servicing Maryland clients will either need to absorb costs (hurting margin) or pass them on (potentially impacting competitiveness).
- Client Retention Risk: Clients in Maryland, particularly SMBs, may react strongly to even modest cost increases. MSPs must proactively communicate the why behind price hikes—and differentiate value to justify them.
- Strategic Planning: For vendors and SOPs, this highlights the importance of tax-aware pricing and geography-sensitive go-to-market strategies. Businesses near state borders may shift operations, purchasing, or even HQs to friendlier jurisdictions.
- Compliance Complexity: Taxation of services like cloud storage, cybersecurity, and consulting introduces new compliance burdens. Providers will need to ensure their billing systems and tax engines can handle nuanced service categorization.
Bottom line: this isn’t just a local tax—it’s a canary in the coal mine for how digital business models will increasingly intersect with state-level tax policy.
MSPs and IT services companies have largely operated under the radar of state legislatures. That era is over.
This tax didn’t come from nowhere—it came from policymakers who didn’t hear from the people it affects. Hyperscalers and telcos often dominate tech lobbying. MSPs, which serve the backbone of small and mid-sized business IT, were absent—and it shows. This legislation effectively lumps cloud platforms, consulting, security, and infrastructure into the same taxable bucket. If MSPs don’t challenge these definitions or help shape them, governments will continue to treat them as commoditized, taxable infrastructure—not strategic partners.
Maryland may be first, but it won’t be last. States facing budget shortfalls will look to digital services as an untapped revenue source. If MSPs and IT service firms don’t begin coordinated advocacy—through associations, regional coalitions, or direct lobbying—this becomes a pattern, not an exception.
If you aren’t a member of the National Society of IT Service Providers, I couldn’t have written an advertisement stronger than the news itself. To my knowledge, they’re the only group considering legislation and lobbying.
The response—or silence—from the MSP community will set the tone for how much say they’ll have in the next round of legislation. The takeaway? Get political, or get taxed into irrelevance.