Maryland’s tech tax isn’t bringing in the cash lawmakers expected.
The 3% tax on IT, data and software publishing services enacted in 2025 is projected to generate about $110 million in its first year — a sharp drop from the nearly $500 million originally forecasted by state officials.
At Wednesday’s Board of Revenue Estimates (BRE) meeting, officials announced the updated figures after the tax produced just $35 million in the first half of fiscal year 2026.
“Since we’re just in year one, and it’s an entirely new tax, it’s possible that companies were unaware of it.”
Ben Yelin, the University of Maryland Center for Health and Homeland Security.
“Based on their numbers being in, we are very confident in this new estimate that has been adopted,” Maryland Comptroller Brooke Lierman said during the meeting.
It imposes a tax on services sold to Maryland customers, even if the company is headquartered outside the state.
About 2,900 companies filed under the tax, officials said, with roughly half of them new sales tax filers. The tax’s underperformance led the BRE to revise its sales tax forecast for fiscal 2027, contributing to a $108 million drop in next year’s overall revenue prediction.
Still, the shortfall isn’t hitting the current fiscal year too hard. An unexpected surge in estate tax collections has largely offset the loss, leaving the state projecting a $355 million surplus.
Looking ahead, BRE Director Robert Rehrmann said that estate tax revenue is a volatile source to rely on.
“We believe this is a one-time benefit,” Rehrmann said.
Enforcement push could intensify
Gov. Wes Moore and lawmakers approved the tech tax last year in a tumultuous budget session to close a $3.3 billion structural budget gap via fund transfers, program cuts and a $1.6 billion tax increase.
Its adoption was deeply felt by startup founders. Baltimore cybersecurity company Pixee told Technical.ly in July that the tax’s passage was enough for the firm to consider jumping ship.
“Maybe the idea of building and doing everything in Maryland and Baltimore is not the idea,” CEO Surag Patel said.
The reasons behind the tax’s muted earnings remain unclear. Senate Budget and Taxation Chair Guy Guzzone said Tuesday that lawmakers are still trying to determine what went wrong.
It could be cost shifting, with companies passing the 3% tax onto customers or adjusting prices and wages so the revenue appears elsewhere, according to Ben Yelin, program director of public policy at the University of Maryland Center for Health and Homeland Security.
Yelin also suggested that some startups might simply be missing the new tax and that the comptroller’s office may need to explore new enforcement strategies.
“Since we’re just in year one, and it’s an entirely new tax, it’s possible that companies were unaware of it,” Yelin said.
Moving forward, Yelin said he could see the tax being repealed if the budget outlook improves.
“It’s one of those things where lawmakers need to make up a revenue shortfall in one year,” Yelin said. “They enact a tax, and it just backfires.”
