Maryland is facing a $3 billion budget gap that it hopes to close with a new “tech tax.” The first-in-the-nation tax, which took effect on Tuesday as part of the state’s budget bill, imposes a 3 percent levy on “the sale of many informational technology services,” reports Maryland Matters. The tax could generate approximately $747 million in tax revenue by FY 2030, but critics warn that the cost will outweigh any fiscal benefits.
The new tax affects a range of IT services, including cloud storage and website hosting, data processing systems, software design, and niche services such as cryptocurrency mining. Under the new law, both Big Tech companies and small businesses will be affected. Businesses will also be responsible for discerning what’s taxable and what’s not. “Each service a vendor provides must be evaluated individually to determine its taxability,” according to the guidance issued by the comptroller’s office. The law carves out exemptions for emerging firms in the University of Maryland, College Park’s Discovery District, tax-exempt organizations (including government agencies), and companies working with quantum computing developers.
While the measure will hurt all tech companies in the state, it will have a demonstrable impact on startups (which often operate on slim or negative profit margins) and smaller firms. “For the industry overall, this tax will raise costs and add confusion, especially for small firms that just don’t have the resources to adapt quickly,” Darren Clark, owner of Clark Computer Services, a Maryland IT service provider, told The Frederick News Post. “Some will have to raise prices or absorb the cost, and I’m worried that will put some of them out of business,” he adds.
The state’s Chamber of Commerce said the measure “would be disastrous for Maryland’s economy, businesses, and jobs, undermining our future as a tech hub and leader.” Business leaders have voiced concerns that the tech tax will likely result in businesses passing costs onto consumers and potentially drive some companies out of the state.
Some could go to neighboring Virginia, which has welcomed data centers and tech companies by offering tax exemptions and loosened restrictions on development for tech firms. Del. Brian M. Crosby (D–Great Mills), vice chair of the House Economic Matters Committee and owner of a small IT firm that contracts with the defense department, relocated his business from Maryland to Virginia in March.
Alternatively, businesses might consider Pennsylvania, where Amazon is investing $20 billion to build at least two new data centers. The deal was agreed to in large part because a “state program exempts large data centers from paying sales tax on any purchases of certain ‘computer data center equipment,” reports Reason‘s Joe Lancaster.
The tax could also drive out workers. Maryland has seen a slight increase in its unemployment rate since the start of 2025. The new tax, combined with the state’s already tight labor market, could lead to fewer entry-level positions being available and slower wage growth for workers.
Since 2024, Maryland has ranked among the bottom 10 states in the country for state tax rates, collections, and burdens, as measured by the Tax Foundation. A tech tax could compound Maryland’s economic woes and drive its emerging tech sector to neighboring states.
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