Maryland Comptroller Sales Tax Audit Protest

The situation

Steven, 46, owns Chesapeake Digital Solutions LLC, a Baltimore-based IT managed services company (12 employees, $2.3M revenue) providing cloud infrastructure management, helpdesk support, and software implementation services to Mid-Atlantic businesses. In March 2026 Steven received a Maryland Comptroller Notice of Final Determination and Order: "Sales and Use Tax: $51,200 (plus $7,680 penalty + $4,100 interest = $62,980 total), audit period: January 2023 – December 2025."

The Comptroller auditor assessed $51,200 on Steven's service revenue, treating his cloud infrastructure management and IT support services as taxable "computer services" under Maryland's enumerated services list (Md. Code Ann., Tax-Gen. § 11-701(b)(2)).

Steven has 30 days to file an online appeal via MyCOMConnect.

(a) Maryland's "computer services" taxability is more limited than the auditor applied. Maryland taxes "computer services" including repair, maintenance, and servicing of computer hardware. However, "software consulting" and "computer programming" involving custom software solutions are NOT taxable. Steven's software implementation services (configuring and customizing third-party enterprise software for clients) may qualify as exempt custom programming services under Maryland's exemption for custom computer software. The auditor may have applied a blanket "computer services = taxable" rule without analyzing whether Steven's services are more accurately classified as "consulting" or "custom programming" (both exempt) vs. "computer maintenance/repair" (taxable).

(b) The audit's sampling methodology is contestable. The Comptroller sampled January-March 2023 and extrapolated the results to the entire 3-year audit period. But January-March 2023 was an atypical period, Steven had two large implementation contracts that produced unusually high one-time service revenue. His typical quarterly revenue is 40% lower. The extrapolated assessment overestimates his actual liability by approximately 40% for this reason.

(c) The 30-day MyCOMConnect deadline runs from the Notice date. An online appeal filed on the 31st day is untimely. Steven received the Notice in the mail 4 days after its issue date, he has about 26 days left.

(d) LVG Law Firm quoted Steven $6,500 for informal hearing representation. The services taxability classification analysis (is IT managed services 'computer maintenance' or 'computer consulting'?) and sampling methodology challenge are both structured analytical tasks that Steven can largely build with the right Maryland-specific framework.

Second portrait: Gloria, 51, owns Annapolis Precision Parts Inc. (12 employees, $3.8M revenue), a Maryland precision machining company producing components for defense contractors. She received a Maryland Comptroller assessment for $38,400 in use tax on CNC machining centers and precision tooling purchased from an out-of-state dealer.

What Gloria doesn't know: Maryland's Md. Code Ann., Tax-Gen. § 11-216 exempts machinery and equipment used "directly and predominantly" (>50%) in manufacturing. Gloria's CNC machining centers are used 100% in manufacturing precision components for defense contractors, no other use. The use tax assessment should be reversed in full under the manufacturing equipment exemption. The informal hearing officer has authority to reverse the assessment without Gloria needing to go to Maryland Tax Court (where attorney representation would be required).

Who receives this

Maryland manufacturers, IT services companies, digital media businesses, and retailers receiving Comptroller of Maryland sales and use tax assessments.

Why the agency will not advise you

The Maryland Comptroller cannot advise audit respondents on how to contest its own assessments. The MyCOMConnect portal handles online appeal filing without strategy guidance. LVG Law Firm, Tax Relief Counsel, and Defense Tax Partners confirm an established attorney market ($3,000–$12,000) with no self-serve alternative. The informal hearing stage (before attorney-mandatory Tax Court) is the key product surface: no attorney required, structured evidence presentation opportunity, 30-day deadline.

Key facts, with sources

• When the Maryland Comptroller completes a sales and use tax audit, the taxpayer receives a Notice of Final Determination and Order. The taxpayer has 30 days to file an appeal online via the Comptroller's MyCOMConnect portal (the Maryland Online Hearing Appeal Request at interactive.marylandtaxes.gov). After receiving an appeal, the Comptroller's Hearings and Appeals Division schedules an informal hearing before a designated hearing officer. The hearing officer is a Comptroller employee (not an independent administrative judge) who conducts the hearing and issues a final administrative determination. Critically, the informal hearing does NOT require an attorney, any individual may represent themselves, or a representative with a valid Power of Attorney may appear. If dissatisfied with the hearing officer's decision, the taxpayer has 30 days to appeal to the Maryland Tax Court (Md. Code Ann., Tax-Gen. § 13-510). Maryland Tax Court proceedings require a licensed attorney for corporate/business entity taxpayers. Source: Appealing Maryland Comptroller Tax Assessments — Tax Relief Counsel · Tax Guidance - Filing Appeals — Maryland Taxpayer Services · Tax Guidance - Hearings and Appeals — Maryland Taxpayer Services
• Maryland's sales and use tax (6% state rate, 9% on alcoholic beverages) applies to retail sales of tangible personal property and enumerated taxable services. Key audit disputes in Maryland include: (1) Services taxability, Maryland taxes a specific list of services (amusement, cleaning, fabrication, photography, and others under Md. Code Ann., Tax-Gen. § 11-701) but exempts professional and business consulting services. Auditors frequently assess tax on service businesses performing hybrid functions (part taxable service, part exempt consulting), requiring classification analysis. (2) Manufacturing exemption, Md. Code Ann., Tax-Gen. § 11-216 exempts machinery and equipment used 'directly and predominantly' in manufacturing. Maryland's 'predominantly' standard (>50% of time in manufacturing use) is consistent with Michigan and Minnesota but permits dual-use equipment exemption that Wisconsin's 'exclusively' standard does not. (3) Digital Advertising Tax, Maryland enacted the first-in-nation Digital Advertising Gross Revenues Tax (DAGRT) in 2021 targeting digital advertising platforms with >$100M global revenue; however, this is a separate tax from the sales tax. Code Ann., Tax-Gen. § 11-102(a)(2). (4) Audit sampling methodology, the Comptroller performs audits for a sample period (3-4 months) and extrapolates the sample error rate to the entire audit period; challenging the sample's representativeness is a primary defense strategy. Source: Maryland Sales and Use Tax Audit Attorney MD VA DC — LVG Law Firm · Maryland Tax Court — Procedures · Maryland Tax Audit Attorney — Gabaie & Associates

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Appealing Maryland Comptroller Tax Assessments — Tax Relief Counsel
2. Tax Guidance - Filing Appeals — Maryland Taxpayer Services
3. Tax Guidance - Hearings and Appeals — Maryland Taxpayer Services
4. Maryland Sales and Use Tax Audit Attorney MD VA DC — LVG Law Firm
5. Maryland Tax Court — Procedures
6. Maryland Tax Audit Attorney — Gabaie & Associates