If your business sells IT consulting, custom software, data processing, or advertising services to customers in Maryland or Washington, you may already owe sales tax on invoices you sent last year — and not realized it. Both states rewrote their sales tax rules in 2025, pulling a wide swath of business-to-business technology and professional services into the taxable column for the first time. If you sell across state lines and haven't touched your invoicing setup since, this is worth twenty minutes of your attention today.
Two States, Two Very Different Laws, One Common Theme
Sales tax has traditionally been a "tangible goods" tax — you paid it on a laptop, not on the consultant who set it up. That line has been eroding for years as software moved to the cloud and services moved online, and in 2025 Maryland and Washington both decided to stop pretending the old rules still made sense.
Maryland passed a new 3% sales and use tax on technology and data services as part of its fiscal 2026 budget, effective July 1, 2025. Washington passed ESSB 5814, layering its existing retail sales tax and business & occupation (B&O) tax onto a long list of previously untaxed services, effective October 1, 2025. Neither law coordinated with the other, and neither matches what most other states do — which is exactly why they've caused so much confusion for businesses trying to figure out whether they owe tax on a contract signed in Ohio for work delivered to a client in Bethesda or Seattle.
What's Now Taxable in Maryland
Maryland's tax applies a flat 3% rate to gross receipts from services that fall under specific federal NAICS industry codes:
- NAICS 518 — data processing, hosting, and computing infrastructure (cloud storage, application hosting, server management, streaming infrastructure)
- NAICS 519 — information services, web search portals, and online archives
- NAICS 5415 — computer systems design, custom software development, and IT consulting
- NAICS 5132 — software publishing, including licensing of software and media rights
If a transaction would also be subject to Maryland's general 6% sales tax (for example, a bundled hardware-and-software sale), the higher 6% rate applies instead of stacking both. Contracts signed before July 1, 2025 are grandfathered in as exempt, but watch out: auto-renewals and change orders executed after that date are treated as new, taxable transactions — a distinction that has already tripped up businesses assuming their existing contracts were safe indefinitely.
There's also a Multiple Points of Use (MPU) certificate mechanism: if a buyer will use a service across more than one jurisdiction, they can issue an MPU certificate that shifts the tax collection and remittance responsibility from the seller to the buyer. That certificate is valid for two years unless revoked, but the buyer has to apportion the tax reasonably based on actual usage — a recordkeeping burden that falls squarely on the buyer's bookkeeping, not the seller's.
What's Now Taxable in Washington
Washington's ESSB 5814 is broader in scope and structured differently — it doesn't use a special rate, it simply redefines what counts as a "retail sale" so that the state's existing retail sales tax and B&O tax apply. Newly taxable categories, effective October 1, 2025, include:
- IT services — help desk support, training, network management, data entry, and data processing
- Custom website and software development
- Advertising services, including digital ad placement, search engine marketing, and web campaign monitoring
- Investigation, security, and monitoring services
- Temporary staffing services
- Live presentations
One narrow but important carve-out: sales between members of the same affiliated corporate group remain excluded, so intercompany service arrangements inside a single corporate family generally aren't newly taxed.
The advertising services piece has proven the most contentious. Comcast sued the state in September 2025, arguing the law discriminates against internet-based advertising by taxing digital ad placement while leaving print, radio, and television advertising exempt — a claim that the tax could run afoul of the federal Internet Tax Freedom Act. That case was still working through Thurston County Superior Court as of mid-2026, with no final ruling yet, so businesses selling digital advertising services into Washington are collecting and remitting tax under a law that could still be modified by the courts.
Washington's legislature has already had second thoughts of its own: a 2026 session bill (ESSB 6346) is set to repeal most of ESSB 5814's service expansion effective January 1, 2029 — with the notable exception of advertising services, which stay taxable. In the meantime, the state has also opened a temporary penalty relief program (applications accepted through September 30, 2027) for businesses that made good-faith efforts to comply with the new rules but got the sourcing or classification wrong in the rollout's early months.
Why This Matters Even If You're Not Based in Either State
Sales tax nexus rules mean physical presence in Maryland or Washington isn't required to owe tax there. If you're a software consultancy in Texas with a client in Baltimore, or a marketing agency in Colorado running digital ad campaigns for a Seattle retailer, the same economic nexus thresholds that already apply to goods sales (typically $100,000 in sales or 200 transactions into the state, though thresholds vary) can apply to these newly taxable services too. Selling remotely doesn't exempt you — it just makes it easier to miss that a threshold has quietly been crossed.
This is the pattern to watch, not just the specifics of these two laws: when a state starts taxing digital goods, B2B services tend to follow within a few years. Texas also expanded its service tax base in 2025, and sales tax forecasters are watching Georgia, Kansas, Pennsylvania, and Wyoming as candidates for similar moves in 2026. If your business model involves selling technology, consulting, or advertising services across state lines, this is not a one-time compliance project — it's a recurring one.
A Worked Example: The $40,000 Mistake
Picture a five-person software consultancy based in Austin. In 2024, they signed a two-year contract with a healthcare network headquartered in Bethesda, Maryland, to build and maintain a custom scheduling system — $20,000 a month, paid on a rolling basis. When the contract auto-renewed in August 2025, nothing about the underlying work changed: same scope, same team, same invoice template. But because the renewal happened after July 1, 2025, Maryland's Comptroller now treats that renewal as a brand-new taxable transaction under NAICS 5415 (computer systems design). The consultancy hadn't registered to collect Maryland sales tax because their original 2024 contract predated the law and was exempt. A year later, they're not just liable for the 3% tax on every invoice since the renewal — they're also facing interest and potential penalties for not having registered and collected in the first place, because "the contract didn't change" isn't a defense the law recognizes. Multiply a missed 3% across a year of six-figure invoicing, and the exposure adds up fast — easily $40,000 or more once penalties and interest are factored in for a mid-sized services contract.
This is the scenario tax advisors keep flagging: businesses correctly identified their original contracts as exempt, then never revisited that determination when the contract quietly renewed. The law didn't grandfather the relationship — it grandfathered the specific transaction, with a hard cutoff date.
Common Mistakes Businesses Are Making Right Now
Assuming "professional services" are categorically exempt. Traditional professional services like legal advice and accounting remain untaxed in both states, but the line between "consulting" and "IT consulting" is exactly where Maryland's NAICS 5415 category lives. A firm that describes itself as a "business consultancy" but spends most of its billable hours on systems design and software implementation is very likely inside the taxable category regardless of how its invoices are labeled.
Treating the tax as the seller's problem only. In both states, sellers are generally responsible for collecting and remitting the tax, but buyers who fail to provide accurate resale or MPU documentation — or who use a service in ways inconsistent with what they certified — can become liable themselves. If your business buys IT or advertising services from a vendor and hands over an MPU certificate, keep the usage records to back it up.
Not updating billing systems before the effective date passed. Many businesses that were current on the Maryland law missed the more obscure Washington provisions (or vice versa), because the two rollout timelines were three months apart and covered different service categories. Treating this as "one multistate tax project" rather than two separate compliance efforts is how gaps happen.
Ignoring the pending litigation as a reason to wait. Some Washington sellers have delayed registering for the advertising services tax, reasoning that the Comcast lawsuit might invalidate it. That's a risky bet: the tax is in effect and enforceable today, litigation outcomes are unpredictable, and the temporary penalty relief program only protects good-faith compliance attempts — not businesses that simply didn't register.
A Practical Compliance Checklist
- Map your service offerings to NAICS codes. Maryland's tax hinges entirely on NAICS classification — if you don't know which codes describe what you sell, that's the first gap to close.
- Segment revenue by customer location, not just by your own. If your accounting system only tracks where invoices are billed from, you can't see where you might owe tax.
- Flag contract renewals and change orders separately from original contracts. In Maryland specifically, a renewal can convert a previously exempt agreement into a taxable one.
- Track the MPU certificate status for any Maryland client claiming multi-jurisdiction use — the burden of proof sits with whoever holds the certificate, and an expired or invalid one can leave the seller on the hook.
- Watch the Washington litigation and the 2029 sunset date if advertising or IT services make up a meaningful share of your Washington revenue — the rules you comply with today may not be the rules in three years.
Keep Your Bookkeeping Ready for Whatever Comes Next
Multistate service taxability is exactly the kind of moving target that's hard to manage in a spreadsheet or a black-box accounting tool where you can't easily tag revenue by service type, customer jurisdiction, and contract date all at once. Beancount.io's plain-text accounting lets you build that structure directly into your ledger — every transaction is fully transparent, version-controlled, and easy to query when a new state tax law lands on your desk. Get started for free and see why developers and finance-savvy business owners are switching to plain-text accounting.