RedZone Technologies, an Annapolis-based cybersecurity solutions provider, is deeply concerned about the Maryland General Assembly’s recent advancement of a 3% sales tax on information technology and digital services. This tax is estimated to cost local technology companies nearly $500 million annually and will disproportionately affect small businesses like ours.
The Unfair Burden on Small Businesses
As a small Maryland company, we operate on thin margins, particularly in the Software-as-a-Service (SaaS) sector. A 3% tax could exceed our available margin, making it impossible to compete with larger providers. Unlike multi-state IT service providers, we cannot absorb this additional cost without hurting our business. The tax applies to virtually every service we offer to Maryland-based clients, and we cannot pass it along without becoming uncompetitive.
Harming Workforce Development Efforts
The proposed tax will also hinder Maryland’s workforce development initiatives. Our IT apprenticeship program, which provides opportunities for Anne Arundel County residents to enter the IT industry, will be negatively impacted. A 3% reduction in our competitive revenue will force us to delay or cancel funding for this program, and other small businesses will likely face similar challenges.
Encouraging Businesses to Relocate
The 3% tech tax will incentivize Anne Arundel County companies to relocate to neighboring jurisdictions like Northern Virginia, where SaaS is non-taxable. This is not an idle threat; two of Maryland’s fastest-growing tech companies, bigbear.ai and Blackpoint Cyber, have already moved to Virginia and Denver, respectively. The tax will not only harm IT companies but also their customers, including small businesses like Mom and Pop restaurants and service firms.
Penalizing Cybersecurity Adoption
By passing the tax on to customers, we will increase their cost of doing business in Maryland. This effectively penalizes these companies for investing in cybersecurity services, leaving them more vulnerable to cyber threats. Instead of punishing small businesses for doing the right thing, we should be supporting them.
A Call to Action for Maryland Legislators
We urge Maryland legislators to reconsider the 3% tech tax and focus on supporting the tech industry. With over 3,000 Maryland companies performing contract work for the federal government, many of whom are tech companies, this tax will put our industry in a difficult position. If legislators decide to move forward, applying a threshold of $30-$40 million could mitigate the damage to small businesses and the state’s reputation.
RedZone Technologies has been proud to call Anne Arundel County home for over two decades. However, not all tech companies will be as committed to staying in Maryland. If this tax is implemented, we can expect to lose small businesses and technology workers. We implore the Anne Arundel County delegation to oppose this tax and protect the local tech industry.
