In the waning days of its 2025 session, the Maryland Legislature passed the Budget Reconciliation and Financing Act, and Governor Wes Moore signed it into law.[1] This bill expands the sales tax base to include sales of various data and information technology and cloud computing services.[2] The sales tax rate on these new categories of taxable services is 3% as opposed to the prevailing state-wide tax rate of 6%. Imposition of the tax on sales of these new categories is effective starting July 1, 2025.
Putting aside the unworkable nature of keying the imposition to North American Industry Classification System codes and the obvious Internet Tax Freedom Act preemption of the imposition on web hosting and data storage, the Maryland Comptroller recently issued interim guidance that adds new, unwarranted complexity in the administration of multiple points of use (MPU) exemption certificates.
The new law takes effect July 1, and many taxpayers are scrambling to interpret and implement it. On June 10, the Comptroller issued a bulletin providing guidance on many of its more technical components,[3] which introduces a distinction between installment sales of and subscriptions to the newly taxable categories of services. This distinction has implications for managing MPU exemption certificates.
Included with the guidance are provisions that give buyers of these newly taxable services (if they plan on using the services in more than one jurisdiction) the option of providing the seller with an MPU exemption certificate.[4] Receipt by the seller of an MPU exemption certificate relieves the seller of the obligation to collect and remit Maryland sales tax on the sale, shifting the obligation of paying the use tax to the buyer.[5] The applicable tax the buyer must pay is determined using a reasonable method of apportionment of the use within Maryland as compared to all the locations of use of the service. Relevant headcount is a reasonable method of apportionment.[6] The presentation of an MPU exemption certificate by the buyer to the seller is optional.
In an installment sale context, there is one sale transaction that occurs at the time of contract execution. Buyers electing into the MPU process would need to supply only one certificate to the vendor that would cover all subsequent installment payments under the contract. Subscriptions are treated differently. Many of these newly taxable categories of computer-related services often are sold on a subscription basis. Under the guidance, each subscription payment is considered a separate sale requiring the issuance of a separate MPU exemption certificate for each subscription payment.[7] We told the Comptroller’s staff that requiring a separate MPU exemption certificate for each subscription payment is unnecessary. The staff responded saying that the rigidity of the process they’ve outlined in this context is under consideration and may be updated in subsequent guidance. (Vendors and buyers concerned about the practical implications of the MPU regime outlined are encouraged to contact the authors of this blog post for more details.)
The process suggested in the guidance for issuing MPU exemption certificates is unnecessarily burdensome. First, before tendering an MPU exemption certificate to the seller, the buyer “must apply to the Comptroller’s Office for authorization to issue an MPU certificate for each transaction.”[8] If the services are provided on a monthly subscription basis, the buyer may have to go through the online authorization process once a month for each vender to which it has tendered an MPU exemption certificate.
There are hurdles for the seller, too. To accept an MPU exemption certificate, the seller must verify its authenticity online.[9] There does not appear to be any current automation of these buyer certificate authorization and seller verification processes. Presumably, the buyer will have to manually have certificates authorized and the seller will have to manually verify them.
While implementation of the legislation does not mention anything about having MPU exemption certificates preauthorized and verified, it does require that certificates include all the information required by the Comptroller. Presumably, the Comptroller has authority from the legislature to impose these requirements. However, the tax administration objectives further requiring separate MPU exemption certificates for subscriptions are not obvious. It may be that the Comptroller lacks the headcount needed to administer the MPU exemption regime in such short order and is erecting administrative barriers to its use by taxpayers.
What happens if the buyer does not give the vendor an MPU exemption certificate? The vendor will collect the tax at the 3% tax rate on an unapportioned basis and remit it to the Comptroller. The buyer presumably would owe use tax to the other jurisdictions where the services will be used (if they are taxable there). The buyer could apply for refunds of tax paid on the portion of the service used outside Maryland. The Comptroller’s emergency regulations and current guidance contemplate this.[10]
What happens if (1) after clearing the authorization and verification hurdles, (2) the buyer tenders a certificate and the seller accepts it on the first payment on a multiyear subscription where payments are due monthly, (3) neither party does anything about following up with additional MPU exemption certificates on a monthly basis, (4) the vendor doesn’t collect tax on the future payments and the buyer apportioned and paid the tax and (5) the vendor gets audited? On this set of facts, the emergency regulations provide some breathing room. Upon notice from the Comptroller that it intends to assess tax on transactions for which the vendor doesn’t have MPU exemption certificates, the vendor has 60 days to obtain them from the buyer.[11] If the vendor has the certificate from the first subscription payment that automatically repeats each month, one wonders what an auditor would hope to accomplish by making the vendor clear this additional paperwork hurdle.
The quickly issued MPU exemption guidance initially seems simple enough, but when one layers on the administrative hurdles proposed by the Comptroller through its guidance, whether to make use of it requires a practical lens and an analysis of the impact on customer relations. If the customer is big enough and wants it bad enough, the vendor will undertake the periodic verification requirements. The buyer, too, will have to weigh whether the refund procedure or current MPU procedure is the lesser of two evils.
We anticipate that the Comptroller will go through the usual administrative procedure and seek public comment on the forthcoming permanent proposed regulations (to date, only temporary emergency regulations and informal guidance exists). Interested parties should be on the lookout for them and weigh in on the subscription/separate sale issue in the context of MPU exemptions. We hope the Comptroller will take industry feedback into consideration and soften the current stance on requiring additional certificates for each transaction in the subscription context.
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[1] House Bill 352, passed April 7, 2025, and signed into law by Governor Moore on May 20, 2025.
[2] See Proposed Emergency Regulations COMAR § 03.06.01.48.A(2)(g)-(i).
[3] Tech. Bull. No. 56 (June 10, 2025).
[4] Id. at ¶28.
[5] Id.
[6] Id. at ¶32.
[7] Id. at ¶29.
[8] Id. at ¶30.
[9] Id. at ¶31.
[10] Proposed Emergency Regulations COMAR § 03.06.01.49.D(3).
[11] Id., § 03.06.01.49.F.
