Maryland Proposes Sweeping Tax Reform to Address Budget Shortfall

Adam Tahir
May 5
3 min read

Governor Wes Moore has unveiled a broad tax reform plan aimed at closing Maryland’s projected budget shortfall and modernizing the state's tax code. Facing rising costs in healthcare, education, and transportation, the Moore administration is proposing a mix of targeted tax increases and new revenue streams intended to generate over $1.2 billion annually by FY 2027.

The proposed legislation, known as the “Fair Share for Maryland Plan,” is already generating statewide debate — especially among business owners, tax professionals, and high-income earners.

1. Where Do We Stand on Maryland’s Budget?

Maryland is projected to face a $3 billion structural budget deficit by FY 2028 if no changes are made. This gap is largely driven by increased spending obligations tied to the state’s education funding law (the Blueprint for Maryland’s Future) and public employee benefits.

Governor Moore’s budget team is pursuing a strategy that combines modest tax increases, expanded tax bases, and cost-cutting reforms to stabilize the state’s finances without widespread cuts to services.

2. What Tax Policies Are Set to Expire or Get Adjusted?

No major expiring provisions, but Maryland’s current tax code is heavily reliant on personal income taxes and has not been significantly updated in decades.
The new proposal is a structural adjustment, not a sunset-related shift.

3. What Are the Proposed Tax Changes?

Key components of Moore’s reform package include:

Progressive Income Tax Reform:
- Introduces higher brackets for income above $500,000.
- Slight rate increases for top 1% of earners.
Digital Advertising Tax Expansion:
- Expands the controversial digital ad tax to include broader categories of tech platforms.
Sales Tax on Professional Services:
- Includes certain consulting, software, and accounting services for the first time.
Tobacco and Vaping Tax Increases
- Includes a $1.25 increase per pack of cigarettes and excise taxes on vape products.
Real Estate Transfer Tax Adjustments
- Higher rates on sales of property valued at $1 million or more.

The proposal also includes a minimum corporate tax floor aimed at preventing large multinationals from paying $0 in state income tax.

4. Which Proposals Are Most Likely to Pass?

The Maryland General Assembly, controlled by Democrats, is generally aligned with Moore’s priorities, but opposition is forming around:

The expansion of sales tax to services, which could hit small businesses
The digital ad tax, which is already under legal challenge from tech firms
Higher real estate transfer taxes, especially in affluent counties like Montgomery and Howard

The progressive income tax tiers and tobacco excise increases have broader support and are more likely to pass in some form.

5. What This Means for Individuals and Businesses

For high-income individuals:

Expect increased marginal tax rates and planning opportunities around capital gains timing and residency.

For service-based businesses:

May face new collection responsibilities for sales tax if the services tax provision passes.

For real estate investors:

Potential for increased transaction costs on luxury properties.

For tech firms:

Renewed scrutiny on advertising revenues and marketplace platforms under the digital ad tax expansion.

6. How to Tax Plan Around These Changes

Tax professionals and CPAs advising Maryland-based clients should begin:

Modeling higher state income taxes for affected earners in 2025 and 2026
Assessing sales tax nexus exposure for professional services firms
Evaluating real estate deal timing to avoid higher transfer taxes
Monitoring litigation around the digital advertising tax for potential reversals or carveouts

Final Thought

Maryland’s proposed tax reform reflects a growing trend among states: adapting outdated tax codes to meet the demands of a modern, service-driven, and digital economy — all while balancing budgetary pressures.

Whether you’re advising high-net-worth clients, running a software firm, or guiding estate planning strategies, staying ahead of these developments is critical.

At Bizora AI, we’ll keep tracking this legislation in real time and helping firms adjust with smart, proactive strategies.