Legal Bulletins

As previously reported, on May 27, 2025, Maryland Governor Wes Moore signed The Budget Reconciliation and Financing Act of 2025, which created, among other tax increases, a three percent (3%) sales and use tax on certain data and information technology services effective as of July 1, 2025 (the “Tax”). On December 26, 2025, the Comptroller of Maryland (the “Comptroller”) issued proposed regulations (the “Proposed Regulations”) to address certain issues with respect to the Tax. The Comptroller will accept comments on the Proposed Regulations through January 26, 2026 and a public hearing has not been scheduled. The Proposed Regulations are consistent with the emergency guidance issued by the Comptroller in June and July of 2025. 

The Tax

The Tax applies to a (i) data or information technology service described under North American Industrial Classification System (“NAICS”) sector 518, 519 or 5415 (which includes computing infrastructure providers, data processing, web hosting and related services; web search portals, libraries, archives and other information services; and computer systems design and related services), and (ii) system software or application software publishing service described under NAICS sector 5132.

Sales of the services listed above to or by a company located in the University of Maryland Discovery District in Prince George’s County that contracts with the University of Maryland’s Applied Research Laboratory for Intelligence and Security to develop systems and technologies to advance the use of quantum computers are exempt from the Tax. Additionally, the sale of cloud computing services to a “qualified cybersecurity business” — defined as a for-profit entity engaged in developing cybersecurity technologies or providing cybersecurity services — is exempt from the Tax.

There is a special rule regarding the purchase of digital code, digital product, taxable data service, taxable information technology service or taxable software publishing service that will be used concurrently both inside and outside the State of Maryland. In such a case, the buyer may provide the vendor with a multiple point of use certificate (“MPU Certificate”). The MPU Certificate must apportion the use of the code, product or service within and outside the State of Maryland. When a vendor receives a properly completed MPU Certificate, the vendor is relieved of its obligation to collect the sales and use tax, and the buyer is obligated to remit the apportioned tax to the State of Maryland. 

The Proposed Regulations

The Proposed Regulations provide guidance in several areas regarding the Tax.  First, the Proposed Regulations provide a detailed list of the services included under the various NAICS sectors listed above that are subject to the Tax.   
      
Second, the Proposed Regulations provide guidance, by the way of examples, to determine if the Tax must be collected when a contract is entered into before July 1, 2025 (the effective date of the Tax), but payments under the contract are made after July 1, 2025.

Where a contract provides for payments to be made in installments upon completion of milestones, whether such a contract is subject to the Tax is determined by reference to the date of the sale, and not when installment payments are made.  Thus, where a contract for the sale of computer systems integration design services is entered into on January 1, 2025, but provides for installment payments over five years upon the completion of milestones, no installment payments will be subject to the Tax. 

But, if the parties to the contract described above were to effectuate a change order to the contract after July 1, 2025 which provides for additional data or technology services at an additional cost, the post-July 1, 2025 change order would constitute a new sale and, therefore, the payments attributable to the services included in the change order would be subject to the Tax. Further, with respect to a contract for a subscription cloud storage service which is renewable on a monthly basis, each subscription payment is considered a separate sale for the purpose of determining if a subscription payment is subject to the Tax. 

Third, the Proposed Regulations provide guidance regarding an MPU Certificate. To issue an MPU Certificate, a buyer must (i) be registered with the Comptroller for a sales and use tax account, and (ii) submit to the Comptroller a separate request for authorization to issue an MPU Certificate for each transaction in which the buyer intends to use an MPU Certificate. 

An MPU Certificate must provide the following information: (i) the name of the buyer, (ii) the tax address of the buyer, (iii) the Maryland combined registration number of the buyer, (iv) the name of the vendor, (v) the address of the vendor, (vi) the estimated date of the sale or, for a subscription, the renewal term, and (vii) a general description of the purchase including, for each item in the sale, information sufficient to identify the item as a digital product, digital code, data or information technology service, the estimated taxable price, and the percentage of the use allocated to Maryland.

A buyer may use any reasonable method of apportionment that is supported by the buyer’s records as they exist at the time of the sale, provided that such apportionment is consistent and uniform.

A buyer who does not issue an MPU Certificate at or before the time of sale may request a refund for sales and use tax paid on the portion of the digital product, digital code, data or information technology service, or software publishing service used outside of Maryland.
 

If you have any additional questions, please contact Douglas T. Coats. 

Douglas T. Coats
410-576-4002 • dcoats@gfrlaw.com