“Digital Services Tax” Sends Maryland Business Community Reeling

In an effort to plug a $3 billion hole in the state’s budget caused by reckless fiscal policy, left-wing Governor Wes Moore and his Democrat-controlled General Assembly decided to unleash a $1.6 billion flurry of tax hikes and fees on Maryland citizens and businesses alike. With increases to the vehicle excise tax, a doubling of the vehicle emissions inspection fee, higher taxes on cannabis sales and sports wagering, a new rental car tax, and income tax hikes for individuals earning over $500,000 a year, one thing is clear: everyone is getting hit with a tax hike. 

Yet one of the most alarming tax hikes included in the bill is a new “digital services tax,” which will apply a 3% sales tax on a variety of data and information technology services. This tax hike is not only threatening to the existing business community in the Old Line State, but also to new companies considering a move to Maryland or serving consumers in the DMV area.  

Technology companies across the state are reeling at the prospect of a more expensive, more complicated tax environment in the coming years. This industry is already cost-prohibitive for many firms. Rising administrative costs will force Maryland technology companies to make operational changes internally or move out of the state altogether. Surag Patel, founder of Baltimore-based cybersecurity firm Pixee, recently invested $15 million into his company and now expresses deep concern over this new tax on digital services. Many months and countless dollars have to be spent to adhere to new compliance standards, especially since the tax is so broad that companies cannot figure out exactly what they need to pay. Similarly, Darren Clark, the founder of Pennsylvania-based Clark Computer Services and Clark Building Technologies in Frederick and Halethorpe, expressed concern over rising administrative costs associated with filing multiple taxes. The financial software that Clark uses will skyrocket from $500 to $6,000, and at least 6 months is necessary for the administrative adjustments needed to make such a transition.  

Even Democrat Delegate Brian Crosby, who serves as the Vice Chair of the House Economic Matters Committee, disagreed with fellow Democrats on the decision to levy a tax that especially harms an important industry in Maryland. Crosby is the owner of a small IT firm that handles contracts with the Department of Defense. Since profit margins are much lower for companies that work with the government, he had to make the difficult decision to move his company to Virginia.  

“We know the numbers,” Crosby said when asked about the effect of the tax on companies in the industry. “All I can say is that within a year, we’d file for bankruptcy.” 

Crosby was on the truck moving his company when the announcement of this tax in the budget bill was made public. The notion that this “digital services tax” is anything but harmful is absurd. The supposed “IT corridor” that fuels Maryland’s economy and contributes to the functioning of our federal government is being gutted by politicians in Annapolis that use tax hikes as an excuse for excessive spending.  

Governor Moore and fellow Democrats blame former Governor Larry Hogan for their egregious spending practices, but this is just bad math. Governor Hogan inherited a $5 billion deficit and left office 8 years later with a $6 billion surplus. Since entering office in 2023, Governor Moore has found a way to sink the state into a $3 billion deficit.  

Conservative fiscal policy and basic common sense create surpluses for the state and allow key sectors of the economy to grow sustainably. Liberal fiscal negligence and a lack of math skills lead to deficits and corporate emigration. And what inevitably follows fiscal mismanagement when Democrats are in charge? You guessed it, ever-higher taxes.