02 May 2025 Maryland General Assembly Tax Matters
At the start of the 2025 Maryland General Assembly session, lawmakers faced a $3.3 billion structural deficit. Although Governor Wes Moore proposed a broad-based 2.5% sales tax on most business-to-business services, the Governor and the General Assembly leaders restructured the Budget Reconciliation and Financing Act of 2025 to exclude a broad-based tax on many business services. They replaced it with additional tax provisions, including a not-quite millionaire’s tax rate, a capital gains surcharge, and a 3% sales tax on some Information Technology and data services, the so-called “Tech Tax.” In addition to tax and fee increases, the General Assembly postponed some spending, effectively kicking the fiscal can and associated pain down the road.
Several tax provisions, including the “Tech Tax,” are scheduled to take effect July 1, 2025. The Tech Tax will apply to businesses that provide
- Computing Infrastructure, Data Processing, Web Hosting, and Related Services (NAICS Code 518);
- Web Search Portals, Libraries, Archives, and Other Information Services (NAICS Code 519);
- Computer Systems Design and Related Services (NAICS Code 5415); or
- Software Publishers (NAICS Code 5132)
Guidance is very thin on this tax. Generally, providing a NAICS code is voluntary when registering a business and filing annual reports. Many companies, such as design, advertising, and IT support, provide these services as part of their overall service offerings. Some of their services may not be subject to tax under these definitions. The definition of these services will be vital and will be the job of the Comptroller of Maryland. The Comptroller of Maryland’s website has a page where updates on regulations and implementation efforts will be posted. Right now, it is blank, but with just two months before some provisions take effect, the page will be a key place to look for guidance.
While the business community was able to beat back a broad business-to-business tax, many small business owners will get smacked around by new taxes. For small business owners who are broadly successful, there are new income tax brackets:
Single Filers with Adjusted Gross Incomes of $500,000 or couples filing jointly making $600,000 will be subject to a 6.25% income tax, in addition to county taxes, which may increase to a maximum of 3.3%. Single filers with an AGI of $1 million or couples filing jointly with an AGI of $1.2 million will be subject to a 6.5% income tax, again with the additional county tax.
Additionally, any filers with an AGI of greater than $350,000 will face a capital gains surcharge of 2% in addition to the federal capital gains taxes.
If you own a vending machine business, the 6% state sales tax will now be included in the products you sell.
Since many of us own cars, the Maryland General Assembly has decided to have a field day on those fees. The following increases were passed:
- Vehicle Excise Tax increased to 6.5%
- The vehicle registration fee increase that was expected to be implemented in 2027 will be moved forward to 2026.
- VEIP inspection fees will more than double, from $14 per inspection to $30, plus late fees will increase.
- Starting January 1, 2026, there will be a $5 fee per tire when you buy a new tire.
- Short-term rental of cars and trucks will be subject to a 3.5% excise tax.
The harder news is that Maryland will face structural deficits in the coming years. The projected deficit for FY 2026-2027 is $2.9 billion and could increase to nearly $6.3 billion by FY 2030. Among people I trust, there is a rumor that Governor Moore could call the General Assembly into special session this year, particularly if the Trump Administration continues to cut spending and reduce the federal workforce, a large percentage of whom live in Maryland.
For more information on what the General Assembly did this year, join me for a Post-Session webinar hosted by the Maryland Small Business Development Center on May 15 at 10:00 a.m. There is no charge for attending the webinar, but registration is required.