Maryland’s new 3% tech tax, effective July 1, 2025, is poised to significantly impact manufacturing companies – especially those that rely on digital infrastructure, software and IT services to operate efficiently. Here’s how.
Overview of the Tech Tax
The tax applies to a wide range of technology services, including:
- Cloud storage and application hosting (e.g., AWS, Google Drive)
- Web hosting and server management
- Software development and installation
- IT consulting and cybersecurity
- SaaS platforms and business software provisioning
The above services could trigger a tax liability even if a company’s primary business is not technology focused.
Impact on Manufacturing Companies
Manufacturers increasingly depend on tech services for ERP systems, supply chain management, IoT, predictive maintenance, robotics and automation software. These services now fall under the taxable category, meaning manufacturers will face higher costs for essential digital tools.
Competitive Disadvantage
Maryland manufacturers may find themselves at a cost disadvantage compared to firms in neighboring states like Virginia or Pennsylvania, which do not impose similar taxes. This could discourage investment in Maryland – pushing companies to relocate operations elsewhere.
| Category | Maryland Manufacturer | Virginia Manufacturer |
|---|---|---|
| Annual Revenue | $50,000,000 | $50,000,000 |
| Profit Margin (10%) | $5,000,000 | $5,000,000 |
| Annual Tech Spend | $2,000,000 | $2,000,000 |
| Tech Tax (3%) | $60,000 | $0 |
| Compliance/Admin Costs | $20,000 | $0 |
| Net Profit After Costs | $4,940,000 | $5,000,000 |
| Effective Profit Margin | 9.88% | 10% |
Federal Contracting Challenges
Many Maryland manufacturers serve as subcontractors to federal agencies. With tight margins (often around 10%), the additional 3% tax could make them less competitive in bidding for contracts.
Administrative Burden
Companies are now required to check off three boxes:
- Analyze service lines for tax exposure.
- Track multi-jurisdictional use of services.
- Possibly issue Multiple Points of Use (MPU) certificates to shift tax liability to buyers.
This adds complexity to tax compliance and may require new systems or consulting support. Maryland’s tech tax is more than just a financial burden; it’s a pivotal challenge that could reshape the future of manufacturing in the state. Manufacturers must prepare to navigate this new landscape to maintain their competitiveness and viability in an increasingly digital economy.
Author: Bonnie Susmano, JD, MBA | [email protected]
Contact Us
For expert guidance on navigating Maryland’s new tech tax and its implications for your manufacturing business, contact Withum’s State and Local Tax Services Team today.
