Thanks to strong advocacy from Maryland's CPAs and business leaders, the state's proposed business-to-business sales tax on accounting, tax preparation, bookkeeping, and payroll services has been removed.

However, lawmakers are now considering a 3% sales tax on data and IT services, which could impact CPA firms and their clients — both as providers and consumers of these services.

Negotiations between the House and Senate are ongoing. Based on a March 20 press conference with Maryland Gov. Wes Moore and legislative leaders and our own behind-the-scenes insights, here’s what we know so far:

What services could be taxed?

The proposed tax is tied to the “data or information technology services” language in House Bill 1554 and Senate Bill 1045, referencing the following North American Industry Classification System sectors:

• 5182: Computing Infrastructure Providers, Data Processing, Web Hosting, and Related Services
• 5192: Web Search Portals, Libraries, Archives, and All Other Information Services
• 5415: Computer Systems Design and Related Services, which includes:
  • Custom computer programming Services
  • Computer systems design services
  • Computer facilities management services
  • Other computer-related services
• 513210: Software Publishers, which includes designing, documenting, installing, and supporting software.

These NAICS code descriptions are very general, and discussions suggest further expansion to include additional services under NAICS 5132.

Implications for CPA firms and clients

If enacted, this tax could result in:

• Increased costs for services and software: Firms using cloud-based platforms or SaaS tools may face higher fees.
  
  
• New compliance and sales tax obligations: Businesses offering taxable IT services may need to register and collect and remit sales tax, determine taxability and source transactions, and update accounting systems and manage new reporting requirements. Purchasers must ensure vendors are collecting tax correctly, adding to administrative workload.
  
  
• Competitive concerns: While some states tax some of the services contained in the proposed list, many do not. Maryland’s adoption of this tax could impact decisions about where to operate or expand.

Stay tuned for updates and details of how you can help

This proposal is part of a broader budget package that includes spending cuts and new revenue measures.

• The House has released a rough draft of the budget components.
• The Senate is still reviewing.
• Statutory language is still being worked on.
• Once passed, the comptroller will need to issue regulations and guidance that contain more details.

Meanwhile, businesses continue to share concerns with lawmakers and the governor, hoping to remove the tax or amend it. However, based on current discussions, some version of this IT services tax is likely to remain in the final budget.

The MACPA’s recommendations

The MACPA State Tax Committee recommends these items for better implementation:

• Clear, detailed definitions of the services that are taxable.
• Exclusion for related entity charges for listed services.
• Apportionment based on the portion of services used in Maryland.

We need your input

As the MACPA continues its advocacy — including direct outreach to lawmakers — we ask you to consider how this proposal might impact your firm and your clients.

• Share your examples with us.
• Suggest additional administrative considerations.
• Help shape our message to policymakers.

Send your feedback to Mary Beth Halpern at marybeth@macpa.org.