New ‘tech tax’ dominates list of laws that take effect July 1, start of fiscal 2026

Of the 300 bills with July 1 effective dates that were signed into law this year, most attention — and aggravation — will be focused on just one, the Budget Reconciliation and Finance Act of 2025, a 200-page bill that raises $2 billion in fiscal 2026 through a combination of new taxes and spending cuts.

And most attention in the bill (House Bill 352 and Senate Bill 321) that goes by its shorthand, BRFA, will be focused on a new a 3% tax increase on the sale of many informational technology services. That alone is expected to raise more than $480 million in new revenue that will help the state close a $3 billion budget hole it found itself in at the start of the year.

The bill also includes new, higher income tax rates for the highest earners and allows local government to increase the amount of income tax they collect. It also includes taxes on cannabis sales, mobile sports wagering and vehicle emissions inspections, among many others.

But the bulk of the new laws are not about dollars and cents. Also starting Tuesday are changes to the Blueprint for Maryland’s Future, the state’s decade-long education reform plan; an expansion of solar-power siting options; a sweeping Chesapeake Bay cleanup bill; and a program to allow state funds to be used for abortions for uninsured and underinsured state residents.

The taxman cometh

For the first time, technology companies will have to pay a sales tax on their services. The tax, originally proposed as a 2.5% business-t0-business tax, was expanded to a 3% on all sales, money that supporters say is needed to head off funding cuts to critical programs in the state.

But critics say the tax — expected to raise $483 million in its first year, growing to $747 million by fiscal 2030 – is a job killer that will drive businesses out of the state. In floor debate on the House floor this spring, Del. Brian Crosby (D-St. Mary’s), the vice chair of the House Economic Matters Committee, took the remarkable step of confirming that he was relocating his tech business outside the state because of the tax following a heated floor debate.

The tax will apply to a range of services: cloud storage, data entry, data processing, media streaming, data storage and technical support, telephone-based recorded information services, cryptocurrency mining, news and press clipping services, media archives such as for film and music, computer software design services, and dozens more.

Comptroller’s Office issues guidance to help businesses brace for 3% ‘tech tax’

Affiliated companies would not have to pay the tax among themselves, and the law exempts emerging technology companies located in the “Discovery District” in College Park. It also exempts companies such as IonQ and companies that do business with a developer of quantum computing technology, an industry that Gov. Wes Moore (D) has targeted for development as part of his efforts to diversify the state’s economy.

The tech tax is the biggest single in the BRFA, but it’s far from the only one. The new law also:

• Creates two new upper-end tax brackets and increases the tax on them from 5.75% to 6.5%, while increasing the standard deduction from $2,500 to $3,350 ($6,700 for joint filers and some others), which is expected to bring in $344 million;
• Allow local governments to raise their income tax from the current maximum of 3.2% of reported state income tax — the rate currently assessed by 18 of the state’s 24 jurisdictions — to 3.3%;
• Raises the tax on mobile sports wagering from 15% to 20%;
• Expedites the phase-in of higher vehicle excise taxes;
• Increases the cannabis sales tax from 9% to 12%;
• And raises the vehicle emissions inspection fee cap from $14 to $30.

The bill also allows the imposition of a $5 fee on the sale of new tires, to help support the Transportation Trust Fund, but that tax will not be assessed until Jan. 1, 2026.

New funding for abortion grants

A new law allows the Maryland Department of Health to release millions of dollars in unspent insurance funds that it hopes to use to fund abortions for uninsured and underinsured Marylanders.

SB 848 and HB 930 create the Public Health Abortion Grant Program, which will be used to help cover abortion costs for uninsured or underinsured Marylanders. The grant program will use $25 million that have been collected in premium surcharges that are required as part of the federal Affordable Care Act but have not been spent down.

That money is the $1-a-month fee that insurers in the ACA marketplace are required to collect on every policy, to fund abortion services for their policyholders. But that fund has been growing by about $3 million a year, as collections have outpaced need.

Under this law, providers will receive the grant funds for providing abortion services for people who do not have insurance or whose health insurance does not cover abortions. While the law goes into effect July, the fund to create the grant program will not be established until September.

Solar bill powers up

Beginning Tuesday, local governments will have less say in the siting of large-scale solar fields, under a law that changes how Maryland regulates solar energy sites.

The law undoes restrictive zoning laws passed in several counties and sets uniform environmental standards for solar farm construction, including rules requiring buffers of trees and shrubs, and limiting the disturbance of topsoil.

The Renewable Energy Certainty Act was part of a three-bill energy package sponsored by Democratic leadership, who said it aimed to prevent solar developers from getting caught in a confusing tangle of local regulations, and stimulate the growth of desirable renewable energy.

It passed over Republicans’ protests, particularly that the bill would leave valuable agricultural lands vulnerable to solar development. The bill does set a 5% limit on solar development in pre-existing agricultural “priority preservation areas,” but opponents argue that that percentage still has the potential to disrupt fragile local farming economies.

An effort by opponents, largely farmers, to challenge the bill by referendum fell just short of the petition signature requirement.

With the bill taking effect, many local jurisdictions are scrambling to update their regulations about solar, said Dominic Butchko, the director of intergovernmental relations at the Maryland Association of Counties, in a recent interview, checking to make sure their local laws mesh with the state’s new policy and aren’t any more restrictive.

The quick turnaround time for counties to fix their laws before the state solar bill takes effect might create some “bumps” in the road, Butchko said, but he said any loose ends are likely to be tied up in the months ahead.

“The counties can go less extreme than what was outlined in the legislation. They just can’t go more extreme, and so jurisdictions are going to have to go through the bill and just make sure that whatever they have on the books really aligns with that,” Butchko said.

The Blueprint

Three years into the implementation of the Blueprint for Maryland’s Future, the 10-year schools education reform plan gets some tweaks in the the Excellence in Maryland Public Schools Act, which takes effect Tuesday.

One major part of the Blueprint deals with the implementation of “collaborative time,” which provides teachers more out-of-classroom time to plan and work with each other on various subjects and also assess student achievement. School systems are supposed to start implementing collaborative time next year.

But state school leaders have said that to fully implement collaborative time, they would need to hire at least 12,000 new teachers at a time when the state faces a teacher shortage.

The law taking effect Tuesday pauses the policy requirement for collaborative time for three years, but keeps the funding amount at $163 per student for next fiscal year. It would stay at that level until fiscal 2029, when it would jump to $334 per student.

Local school officials and advocates have expressed repeated frustration in implementing the Blueprint plan. In December, the Public School Superintendents’ Association of Maryland released a report that included a recommendation to clarify roles between state Board of Education and Accountability and Implementation Board, which oversees the Blueprint. That recommendation bore fruit last week, when the two boards approved an agreement that clarifies the roles and responsibilities of each.

But some Republican lawmakers and education advocates already say they are going to continue to push for more Blueprint reforms when the General Assembly returns in January.

¡Si, ellos pueden!

Thousands more Marylanders are expected to be able to take the General Educational Development test, also known as the GED, for the equivalent of a high school diploma, now that the test will be offered in Spanish as well as English.

SB 451 sponsored by Senate Majority Leader Nancy King (D-Montgomery) and HB 325 sponsored by Del. Greg Wims (D-Montgomery) will allow individuals to take the exam at least twice a year at locations throughout the state. Wims said earlier this year Maryland was the only state to publish the test in English only.

In written testimony on the measures, the department said slightly more than 9,000 people whose primary language was Spanish enrolled in programs it offered in 2023-24. Of those individuals, approximately 4,177, or 46%, did not have a high school diploma.

The new law comes as President Donald Trump (R) has issued an executive order making English the official language of the U.S. and rescincing a 2000 executive order signed by then-President Bill Clinton (D) that directed federal agencies and organizations receiving federal funding to improve access to services for those are with limited English proficiency.

The U.S. has never had an official language, and it’s unclear what effect Trump’s order can have, absent legislation. According to a June 3 report from the U.S. Census Bureau, about 22% of people in the U.S. age 5 and older spoke a language other than English between 2017 to 2021.

The law also requires the state Department of Labor, which administers the GED tests, to study whether the test can be offered in other languages besides English and Spanish. Those recommendations must be submitted to the Senate Finance and House Ways and Means committees by Dec. 1, 2026.

FBI funding

Speaking of pushing back against Trump, HB 1078 sponsored by Prince George’s Democratic Dels. Nicole Williams, Anne Healey and Ashanti Martinez directs the governor to include $200 million in the state budget “for site redevelopment and to improve transportation infrastructure for the Federal Bureau of Investigation headquarters relocation project.”

The proposed new FBI site in Greenbelt was chosen in November 2023 by the General Services Administration as the next home for the FBI headquarters and its 7,500 employees.

But on the same day the House approved the measure in March, Trump said he would stop plans to build the new FBI headquarters in Maryland, noting that it’s a blue state and claiming that the Greenbelt site is “three hours away” from the agency’s current site at 935 Pennsylvania Ave. NW in Washington. The Greenbelt site is about actually 16 miles from the D.C. location.

The GSA had two other finalists for the FBI site, one in Landover, also in Prince George’s County, and another in Springfield, Virginia.

Virginia representatives claim the process to select Maryland was flawed, especially after a federal inspector general’s report released in February found fault with the process — but not with the Greenbelt site.

FBI Director Kash Patel said last month about 1,500 employees would be transferred to other locations nationwide, but did not mention a site for a new headquarters.

Young adult health care subsidies extended

Young people buying health insurance on the state’s Affordable Care Act marketplace will continue to see savings on their monthly premiums, thanks to the new law that eliminates the expiration date for the State-Based Young Adult Health Insurance Subsidies Pilot Program.

The current program aims to help low-income Marylanders between the ages of 18 and 37 afford individual health plans through state-funded subsidies, taking an average of $40 off of their monthly insurance premiums. Those savings range depending on the individual’s financial situation.

Officials say that the subsidies have led to an increase in enrollment from this age group, which helps create a healthier insurance pool all around and lower rates for everyone. With the new law under HB 297 and SB 5, those savings will be permanent, so long as the state has funding to support the subsidies.

Establishing a disability employment initiative

One of the governor’s priority bills, to help give people with disabilities greater access to employment opportunities, will launch in July.

HB 502 establishes the Office of Disability Employment Advancement and Policy. The new office will explore strategies to improve employment, training and care-readiness of people with disabilities.

The office will also implement the “Maryland as a Model Employer Initiative” which will help connect people with disabilities to jobs and promote career advancement for those individuals. The office will also report data on the success of those effort to the governor and the General Assembly starting next December and every year after.

A grab bag of Chesapeake Bay policy changes

States in the Chesapeake Bay watershed are set to release new multiyear bay restoration agreement, after they fell short of goals set in a 2025 plan. In the meantime, the Chesapeake Bay Legacy Act (HB 506 and SB428) takes effect Tuesday with a variety of programs aimed at bay cleanup regulations in Maryland.

The act, a priority of the governor’s, includes a new $900,000 program to encourage ecofriendly farming, called the Maryland Leaders in Environmentally Engaged Farming, or LEEF, program. Meant to mimic the LEED program for green buildings, the program will reward sustainable agricultural practices.

It also includes a number of tweaks to policies at the Maryland Department of Natural Resources: Allowing the state to utilize water quality data from community groups, reducing the number of species for which the state must produce fishery plans (and deferring to regional fishery managers) and letting some watermen process fish using a Japanese technique known as ike jime and sell them directly to restaurants without being licensed as a food establishment.

The Bay Legacy Act initially received a mixed reception, with some legislators and advocates pointing out that it included a confusing tangle of provisions impacting different parts of state government. Others argued that it did not go far enough toward tackling the bay’s greatest challenges, including the nutrient and sediment pollution.

But Moore administration officials argue that the bill will encourage farmers to keep making improvements during a time when the federal government is backing away. Many conservation groups and organic farmers backed the bill. The day he signed the bill, Moore called it “the most comprehensive piece of Chesapeake Bay legislation that Maryland has seen in years.”