Start a business in Maryland
Maryland costs $300 a year before you earn anything — the annual report fee is the same for a business that billed nothing and one that billed a million. And since 1 July 2025 the state charges 3% sales tax on data and information technology services, which means a one-person web shop or IT consultancy that has never collected sales tax anywhere is now a registered Maryland vendor. This page is about both, plus the county income tax that follows where you live rather than where you work.
Start with the floor, because Maryland's is higher than its neighbours'. Forming costs $150 online — the $100 fee plus a $50 expedite charge that is compulsory on the online route, not optional. Then $300 every 15 April for the annual report, regardless of revenue, regardless of profit, regardless of whether the business traded at all. Five years of Maryland state fees is $1,350, against $300 in Virginia and $230 in West Virginia.
That is the predictable part. The unpredictable part arrived on 1 July 2025 with a new 3% rate on data and IT services, and it lands on exactly the kind of business that assumed sales tax was something shops dealt with. The LLC hub has the formation mechanics; this page is what comes after.
- Sales tax
- 6% (3% on data and IT services) state · typically 6%
- Local income tax
- Yes — 2.25%–3.30%
- State business licence
- Trader's licence (for businesses selling goods) — Scaled by the value of the business's inventory — the current fee schedule was not confirmed in this pass
- Workers' comp from
- 1 employee
- Formation approved in
- Online filings through Maryland Business Express are processed on the expedited track, typically within about a week
- First 90 days, all in
- $250–$1,500 · $150 of it to the state
Official portals: Maryland Business Express — Register a Business · Comptroller of Maryland — Business Tax Registration · Maryland Courts — Business Licences (Clerks of the Circuit Court). Figures checked September 2026; the portal always wins.
The 3% on data and IT services
Maryland's general sales tax rate is 6% and applies mostly to goods. Since 1 July 2025 a separate, lower rate of 3% applies to a defined set of services: data services, information technology services, and software publishing — the activities described by NAICS 518, 519, 5132 and 5415. In plain terms that reaches cloud and hosting, data processing and storage, software publishing, computer systems design, and IT consulting.
The Comptroller has been explicit about the thing everyone tries first. The test is the service you actually sold, not the industry code your business filed under. Reclassifying the company does not take the work out of the tax, because the tax follows the invoice line, not the registration.
- Likely inside the 3%
- Hosting and cloud services, data processing and storage, software publishing, systems design and integration, IT consulting and managed IT support.
- Likely outside it
- Most other services remain untaxed in Maryland — professional advice, design that is not systems design, writing, training. Which side a given engagement falls on is a real question for mixed work, and Technical Bulletin 56 is the document to read.
- What it means in practice
- You register as a vendor with the Comptroller, add the line to invoices, and file returns on a cycle the Comptroller assigns. Registration itself is free through Maryland Tax Connect.
- Mixed invoices
- A single project that includes both taxable IT work and untaxed advisory work needs the taxable element identified. Splitting it on the invoice from the start is easier than reconstructing it at audit.
15 April, and the return most people file blank
The Maryland annual report goes to the State Department of Assessments and Taxation, costs $300 and is due 15 April. What sits alongside it, and is easy to miss, is the Personal Property Tax Return — Maryland's mechanism for taxing business equipment, filed with SDAT on the same schedule and assessed by the counties.
For a business with a laptop and a desk the personal property side generally produces no tax. It is still part of the filing, and it is where the county's claim on your equipment lives. Unlike most of the South, Maryland does not run this through a separate county appraiser — SDAT does the assessment and the counties bill from it, so it is one filing rather than one per county.
| What | Amount | When |
|---|---|---|
| Annual report to SDAT | $300 | 15 April, every year, regardless of revenue |
| Personal Property Tax Return | Assessed on equipment value | Filed with the annual report |
| Sales and use tax returns | 6%, or 3% on data and IT services | On the cycle the Comptroller assigns |
| State + county income tax | State rates plus 2.25%–3.30% county | With your personal return |
The county income tax follows your address, not your customers'
Every Maryland county and Baltimore City levies its own income tax on residents, collected on the same return as the state tax, so it is one filing but two rates. For 2026 they run from 2.25% in Worcester County to 3.30% in Dorchester and Kent. Twelve jurisdictions — Baltimore City and Baltimore County, Montgomery, Prince George's, Howard, Allegany, Calvert, Caroline, Queen Anne's, St. Mary's, Somerset and Wicomico — sit at 3.20%. Anne Arundel is tiered from 2.70% to 3.20% by income. Non-residents pay a special 2.25% rate in place of a county rate.
The rate is decided by where the owner lives, not where the business operates or where the customers are. Your LLC's profit passes through to you and is taxed at your home county's rate. Moving house across a county line changes the bill; moving the registered office does not.
If you sell goods, the licence comes from a courthouse
Maryland is one of the few states that still licenses at state level rather than leaving it to cities. A business selling goods needs a trader's licence, and it comes from the Clerk of the Circuit Court in the county where the business operates, renewed annually. Around thirty other trades — construction, health, food, vending — carry their own licences under the same scheme.
A pure services business generally needs none of it. That includes most consultancies, agencies and IT shops, which is a useful thing to know before you queue at a courthouse for a licence you do not need.
One honest gap: the trader's licence fee is banded by the value of the business's inventory, and the current band schedule could not be verified in this pass. Do not budget from a number you found on a blog — ring the Clerk of the Circuit Court for your county and ask what band your stock falls into. On the other side, Maryland does not use a general city or county business licence the way most of the South does, so there is no second local licence waiting behind this one.
Cover from the first employee, with no exemption to fall back on
Maryland requires workers' compensation cover from the first employee, full time or part time. There is no small-employer exemption of the kind almost every state on this coast has: Alabama and Tennessee start at five, Florida and South Carolina at four, Virginia, Georgia and North Carolina at three. A single Saturday assistant in Maryland puts you in the same regulatory position as a fifty-person firm.
Unemployment insurance works the same way. Register with the Division of Unemployment Insurance as soon as you have an employee — Maryland does not use the $1,500-a-quarter test that most of its neighbours apply, so there is no quiet quarter before liability starts. The 2026 taxable wage base and new-employer rate were not confirmed in this pass; the BEACON employer portal carries the current figures.
The practical consequence is that the first hire in Maryland costs more than the first hire anywhere adjacent, and the gap is a workers' comp premium plus a payroll registration you were not expecting. It is not a reason not to hire. It is a reason to have the quote before you make the offer.
Common questions
Do I have to charge Maryland sales tax on IT work?
If you sell data services, information technology services or software publishing — the activities in NAICS 518, 519, 5132 and 5415 — then since 1 July 2025 the rate is 3%. That covers hosting, cloud, data processing, software publishing, systems design and IT consulting. The Comptroller's Technical Bulletin 56 is the reference, and it states plainly that the test is the service sold, not the NAICS code the business registered under.
Can I avoid the 3% by changing my business classification?
No. The Comptroller has addressed this directly: liability follows the service actually provided, not the code on your registration. Reclassifying the company does not move the work out of the tax.
Is the $300 annual report really due even if I made nothing?
Yes. The Maryland annual report fee is $300 every 15 April whatever the business earned, and it goes to the State Department of Assessments and Taxation. The Personal Property Tax Return is filed alongside it, which is how Maryland counties reach business equipment.
How much is the county income tax and who decides my rate?
For 2026 county rates run from 2.25% in Worcester to 3.30% in Dorchester and Kent, with twelve jurisdictions at 3.20% and Anne Arundel tiered from 2.70% to 3.20%. It is set by where you live, not where the business operates, and is collected on the same return as the state tax. Non-residents pay a special 2.25% rate instead.
Do I need a trader's licence?
Only if you sell goods. It comes from the Clerk of the Circuit Court in your county, renewed annually, and the fee is banded by the value of your inventory — the current bands could not be verified here, so ring the Clerk before budgeting. A services-only business generally needs no licence at all, and Maryland has no general city or county business licence.
When does workers' compensation become compulsory in Maryland?
From the first employee, full or part time. Maryland has no small-employer exemption, unlike every state that borders it and most of the South — Virginia is three employees, Alabama and Tennessee five. Budget for a premium from your first hire.
Why did forming my LLC cost $150 rather than $100?
The filing fee is $100, but online filings through Maryland Business Express carry a compulsory $50 expedite fee, so the online route is $150. Filing on paper at $100 is slower. Online filings are processed on the expedited track, typically within about a week.
Know whether the 3% applies to you before an invoice goes out.
Describe your business and Velofound lays out what Maryland asks of it — the April report, the vendor question, your county rate — beside a live website taking card payments into your own Stripe account. Free to start.
Start free →