On April 7, the Maryland legislature passed House Bill 352 and sent it to Gov. Wes Moore for him to sign into law. If enacted without any line-item vetoes affecting the provisions below, the bill will create several tax law changes in the Old Line State.
Personal Income Tax
New tax rates on higher-income individuals: Effective Jan. 1, 2025, higher tax rates may be imposed on higher-income individuals. A new 6.25% tax bracket will apply to taxable income between $500,001 and $1 million ($600,001- $1.2M for joint filers). A new top tax bracket of 6.5% will apply to taxable income exceeding $1 million ($1.2M for joint filers). Formerly, the top tax bracket in Maryland was 5.75% on income exceeding $250,000 ($300,000 for joint filers). Also, Maryland counties can now raise their top tax rate from 3.2% to 3.3%.
New capital gains surtax: For individuals whose federal adjusted gross income (AGI) exceeds $350,000, a new 2% surtax applies to their net capital gain income. This 2% surtax is in addition to the normal state income tax. Thus, the top tax rate on capital gain income in Maryland could be as high as 9.3%, including county tax.
Increase in standard deduction: The Maryland standard deduction will increase from $2,250 to $3,350 for most individual filers and from $4,500 to $6,700 for joint filers.
Phaseout/Reductions in itemized deductions: Individuals whose federal AGI exceeds $200,000 ($100,000 for married individuals filing separately) must reduce their Maryland itemized deductions by 7.5% of the excess of their federal AGI over that amount. This effectively brings back the former federal “Pease” limitation on itemized deductions that was repealed after 2017, but at a much greater amount (the former federal phaseout was 3% over the AGI threshold, whereas Maryland’s is 7.5%).
Sales & Use Tax
New sales tax on certain digital/computer/software services: Effective July 1, 2025, a 3% sales tax (half of the normal statewide rate of 6%) will apply to the sale of the following services when provided to an end user in Maryland:
- Data or information technology services as described in NAICS sectors 518 (data processing, hosting and infrastructure services including web and application hosting), 519 (information services including news syndication, libraries, digital publishing and web portals) or 5415 (computer systems design and integration, custom programming and related consulting services).
- System software or application software publishing services described under NAICS sector 5132 (software publishing, including SaaS and other online services).
- Where it’s possible that a taxable service could be taxed at either the general 6% rate or the new 3% rate on certain services, the 6% rate will apply.
- The new 3% tax on cloud-computing services does not apply to qualified cybersecurity businesses.
The legislation presumes taxability when the service is billed to an address in Maryland. The legislation also provides that when a taxable service is billed to a Maryland address but usage of the service takes place both inside and outside the state, the purchaser may provide the vendor with a certificate evidencing such usage. This will relieve the vendor from its obligation to bill, collect, and remit sales tax, but the purchaser is liable for Maryland use tax to the extent of their usage of the service in the state.
Imposition of sales tax on vending machine sales: Effective July 1, 2025, sales of snack food products through a vending machine other than milk, fresh fruit, fresh vegetables, or yogurt are subject to Maryland’s 6% sales tax.
Significantly narrowed exemption for certain sales of precious metal coins or bullion: Under existing law, sales of precious metal coins or bullion are exempt from Maryland sales tax if the sale price is greater than $1,000. Under the new legislation, this exemption has been significantly narrowed and only applies to sales of coins and bullion with a price of less than $1,000 if the sale takes place at the Baltimore Convention Center. Thus, sales taking place elsewhere in the state will no longer be exempt.
Increased sales tax on cannabis products: The state sales tax rate on cannabis products will increase from 9% to 12% effective July 1, 2025.
Pass Through Entity Tax
For tax years beginning after Dec. 31, 2025, the Maryland Pass-Through Entity Tax base has been modified to include now the entire distributive share of a resident’s resident partner’s or shareholder’s income. Formerly, the pass-through entity tax was imposed on the entity’s income as apportioned to Maryland for both resident and non-resident members.
No Corporate Tax Decreases or Combined Reporting
What is also worth noting is what did not make it into HB352 as passed by the legislature. In his budget address, Gov. Moore proposed decreasing the state’s corporate tax rate from 8.25% to 7.99% and moving Maryland to a “combined reporting” state. As introduced, HB 352 did not contain a corporate tax rate reduction but did incorporate a worldwide combined reporting requirement with a permissible “water’s-edge” election. However, the combined reporting provisions were pulled from the bill shortly before its passage.
If you have any questions or concerns regarding these forthcoming tax law changes in Maryland, please contact a CBIZ SALT professional.
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