The Chamber of Commerce has called the tax a “disastrous” policy that threatens the state’s economy and its future as a tech hub.
The new tax affects a range of IT services, including cloud storage and website hosting, data processing systems, software design, and niche services such as cryptocurrency mining. Under the new law, both Big Tech companies and small businesses will be affected. Businesses will also be responsible for discerning what's taxable and what's not. "Each service a vendor provides must be evaluated individually to determine its taxability," according to the guidance issued by the comptroller's office.
The exemptions are funny though:
The law carves out exemptions for emerging firms in the University of Maryland, College Park's Discovery District, tax-exempt organizations (including government agencies), and companies working with quantum computing developers.
As someone that in a distant past ran a company under a 19% VAT regime, I know that for the service provider, it isn't that big a deal because you just add a tax line item and done. And since everyone has to do it, you won't really lose existing business.
The chilling effect from these types of taxes instead mostly applies to the budget lost on the buyer side that would otherwise be used for innovation. Precisely the services that those exempt offer. Arguably with 3% it won't be that huge, but: if you allocated a very generous (non-austerity-era) 20% of your total budget to innovation and now get setbacks, the result often is that you'll reallocate the extra 3% from that "nice-to-have" and sit there with a remainder of 17% allocation, which is a -15% impact on the total innovation budget!
Let's see how this will play out.