Maryland’s tech tax could drive industry to lower-cost states

Since founding my tech company in 2002, I’ve witnessed firsthand how technology has flattened the world.

Information technology and digital services underpin all aspects of society. Businesses can now perform work instantaneously, from any location, across borders, time zones and oceans. The technology companies themselves can locate most places in the world and tend to flock to business-friendly locations. 

By advancing a 3% sales tax on all IT and digital services — a so-called “tech tax” — Maryland policymakers appear to be ignoring what that means. 

This isn’t a tax on profits. It’s a tax on sales or revenue–earned in an already low-margin, portable industry. For small businesses paying an increased sales tax on the technology they consume, that 3% could be the difference between hiring new talent or cutting back — between growing or closing shop. 

Technology companies that don’t have the margins to concede 3% more, can simply move or not come here. In a country with 50 states competing to attract new businesses, entrepreneurs have choices.

Even before the tech tax was approved, AI company BigBear.ai moved to Northern Virginia while Blackpoint Cyber decamped to Colorado. Both states are considerably more business-friendly, with lower costs to doing business. 

Although the business community appreciates that Maryland policymakers are required to balance the state budget, a new tech tax will only harm revenue down the road as businesses relocate. 

Neighboring Pennsylvania has figured out how to spend $20 billion less than Maryland for more than twice the population. Why do we keep raising taxes? Instead, we must balance our spending. 

Some have suggested that Maryland should impose the tech tax because states like Texas have one, too. That comparison is short-sighted. While Texas does tax some IT services, it also has no taxes for corporate or personal income. Maryland, on the other hand, taxes both at high rates. CNBC found in 2024 that Texas has a significantly lower cost of doing business than Maryland, ranking 6th in the nation compared to Maryland’s 47th. 

Additionally, the energy sector dominates Texas’ economy, with about $26 billion in annual state and local tax revenues coming from an industry that cannot easily relocate. Maryland does not have large petroleum reserves to fund its budget every year. Instead, it relies on a large technology industry, among others, to fund its needs. Adding new burdens to an economy it relies on to not relocate to other states is bad for business and future tax revenue.

I’ve kept Mindgrub in Maryland for 23 years because I love this state. It’s where we built our team, raised our families and grew alongside a thriving tech community.

But new founders may not feel the same. Their roots are not deep.

When you’re building a startup, every dollar counts. If Maryland makes it harder to thrive, those founders will take their dreams and jobs elsewhere.