# Maryland Contractor Taxes and Licensing: A Guide for Trades

Maryland treats real property contractors as the buyers of their materials: you pay the 6% sales tax when you purchase them, and labor to install, erect or repair real property isn't taxable, whether it's itemized or lump-sum. Home improvement work for homeowners requires a Maryland Home Improvement Commission (MHIC) license.

## Key takeaways

- You pay 6% on building materials. Labor to build or repair real property isn't taxed.
- Some items, like wall-to-wall carpet, can be bought for resale, and then you collect tax from the customer.
- Only MHIC licensees can contract with homeowners for home improvement work, and they need $500,000 in general liability coverage.
- Plumbing, electrical and HVACR are licensed statewide by separate boards, with local plumbing licenses in Baltimore County and the WSSC area.
- For tax years after 2024, Maryland added 6.25% and 6.50% income tax brackets and allows counties to charge up to 3.30% from 2026.

## What should contractors know about Maryland first?

Maryland licenses home improvement work tightly and changed several taxes in 2025. The Maryland Department of Labor says "only MHIC licensed contractors may enter into contracts with homeowners to perform home improvement work." That's a real license with an exam, a Guaranty Fund assessment and, since June 1, 2024, at least **$500,000** of general liability insurance. Plumbers, electricians and HVACR contractors each answer to their own state board on top of that.

On the tax side, the 2025 Budget Reconciliation and Financing Act added a **3% sales tax on certain data and IT services** starting July 1, 2025, and new top income tax brackets. Neither changes how your materials are taxed, but both can change your costs. If you work in [Delaware](https://www.brix.so/taxes/delaware), [Virginia](https://www.brix.so/taxes/virginia) or [Pennsylvania](https://www.brix.so/taxes/pennsylvania) too, expect different rules at each line.

## Do Maryland contractors charge sales tax on labor?

No, not for real property work. The Comptroller's Business Tax Tip #18 says labor charges "(whether separately stated or lump-sum billed) to install, erect, assemble, or repair real property are not taxable." The same goes for separately stated labor to install personal property. But if installation of personal property isn't split out, the whole price is taxable, and **fabrication labor** is taxable either way.

Which side of the line a job falls on depends on intent. Material meant to "permanently and substantially improve" real property is real property: the Comptroller lists built-in residential dishwashers, garbage disposals, kitchen cabinets, fencing, landscaping, windows and doors. You pay tax on those materials and charge the customer none. Items installed for a temporary purpose, like business cabinetry or modular office furniture, stay personal property: you buy them on a resale certificate and charge tax on the total.

Maryland taxes services only when the law names them. The Comptroller's list of taxable services includes **cleaning of a commercial or industrial building** and **security systems service**, which matter if you install alarms or run a janitorial crew. Labor to repair someone's existing tangible personal property isn't taxed. The sales and use tax rate is **6%**, with limited exceptions such as the new 3% rate on data and IT services. Compare other states in [sales tax on labor vs. materials](https://www.brix.so/learn/sales-tax-on-labor-vs-materials).

## How are materials and out-of-state purchases taxed?

Tax Tip #18 is direct: "Real property contractors must pay the 6 percent sales tax on building materials and supplies." Flooring shows how fine the line is. Vinyl, tile and laminate are real property improvements, so you pay tax to the supplier. Wall-to-wall carpet can be bought tax free on a resale certificate, and then you collect sales tax from your customer. Using a resale certificate (see Business Tax Tip #4) requires a sales and use tax license if you regularly sell tangible personal property.

- **Nonprofit jobs:** you can use the exemption certificate of a Maryland nonprofit charitable, educational or religious organization, a volunteer fire, ambulance or rescue company, or a nonprofit cemetery for materials incorporated into its real property.
- **Government jobs:** materials for real property owned by governments, embassies or credit unions are taxable to you. You can't use their exemption certificate.
- **Out-of-state purchases:** Business Tax Tip #3 says construction materials bought elsewhere and used in Maryland owe the 6% use tax, with credit for tax paid to another state. Licensed businesses report them on line 7 of the sales and use tax return.
- **Tools and rented equipment:** taxable. Equipment you bring into Maryland gets credit for tax paid elsewhere and a 10% depreciation allowance per full year used outside the state.

One 2025 change to watch: the Comptroller's Tax Alert says the 3% tax applies to data, IT and software publishing services under NAICS codes 518, 519, 5132 and 5415, and the exemption for custom computer software was repealed July 1, 2025. Your software and IT bills may carry it. Read more about [use tax for contractors](https://www.brix.so/learn/use-tax-for-contractors).

## What contractor licenses does Maryland require?

**Maryland state licenses for common trades**

| Trade | Agency | License or registration | Link |
| --- | --- | --- | --- |
| General contractor / home improvement | Maryland Home Improvement Commission (Dept. of Labor) | MHIC contractor and salesperson licenses; $500,000 general liability | [MHIC page](https://www.labor.maryland.gov/license/mhic/) |
| New home building | Office of the Attorney General, Home Builder Registration Unit | Home builder registration (MHIC doesn't cover new homes) | [MHIC FAQ](https://www.labor.maryland.gov/license/mhic/mhicfaq.shtml) |
| Electrical | Maryland State Board of Electricians | Master, journeyperson or apprentice electrician | [board page](https://www.labor.maryland.gov/license/elec/) |
| Plumbing and gas | Maryland Board of Plumbing | Plumbing license; natural gas fitter license | [board page](https://www.labor.maryland.gov/license/pl/) |
| HVAC / refrigeration | Maryland Board of HVACR Contractors | Master, master restricted, limited, journeyman, apprentice | [board page](https://www.labor.maryland.gov/license/hvacr/) |
| Roofing | Maryland Home Improvement Commission | MHIC license for residential roofing (MHIC lists roofs as home improvement) | [What is home improvement](https://www.labor.maryland.gov/license/mhic/mhicwhatishi.shtml) |

_Checked 2026-10-19 against Maryland Department of Labor licensing pages._

MHIC covers alteration, remodeling, repair or replacement of a residence, including roofs, siding, gutters, decks, fences, windows and solar panel systems. It doesn't cover commonly owned areas of condominiums or buildings with four or more single-family units. Subcontractors working for a licensed contractor haven't needed their own MHIC license since July 1, 2016. The Guaranty Fund assessment is $100 on an original license and $175 on renewal, each covering two years; MHIC raised its other fees on August 1, 2024, so check its current fee schedule.

Two local layers still apply. Tax Tip #18 says contractors doing construction need an annual **construction license** from the local Clerk of the Circuit Court, valid May 1 through April 30, unless they already hold an MHIC license. And the Board of Plumbing says Baltimore County and the Washington Suburban Sanitary Commission area (Prince George's and Montgomery Counties) "issue their own licenses and have their own plumbing code." Permits come from your county or city. See [contractor licenses](https://www.brix.so/learn/contractor-license) for the national view.

## What income taxes do Maryland contractors pay?

Maryland has a graduated income tax plus a county income tax. The Comptroller's December 2025 Tax Alert says that for tax years after 2024 the 5.75% bracket is capped and two brackets were added: **6.25%** on Maryland taxable income of $500,001 to $1,000,000 ($600,001 to $1,200,000 for joint filers) and **6.50%** above that. It also added a 2% tax on net capital gains for people with federal AGI over $350,000. Counties and Baltimore City may charge up to **3.30%** for tax years after 2025.

Tax Tip #18 says resident sole proprietors file Form 502 and make quarterly estimated payments on income not subject to withholding. S corporations, partnerships and LLCs file Form 510 as pass-through entities, and the entity makes estimated payments for nonresident owners. Maryland's **pass-through entity (PTE) tax** rate is now 8.75% on individual members' shares and 8.25% on entity members' shares. Most entities also file an annual report with the State Department of Assessments and Taxation: SDAT's 2024 Form 1 lists a $300 fee for LLCs and corporations, due April 15. Work out payments with the [quarterly estimated tax calculator](https://www.brix.so/tools/quarterly-estimated-tax-calculator) and [quarterly estimated taxes for contractors](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors).

## Do you need workers' comp in Maryland?

Yes, once you have an employee. Labor and Employment Article § 9-402 says "each employer shall secure compensation for all covered employees," through an authorized insurer or approved self-insurance. The Workers' Compensation Commission's sole proprietor form reminds owners: if you hire one or more employees, you must insure them. A sole proprietor can choose to cover themself under § 9-227.

Owners of corporations and LLCs are treated differently. Under § 9-206, a paid corporate officer or LLC member is a covered employee by default. Officers of a close corporation, LLC members owning at least 20% of profit interests, and up to five officers of other corporations can elect out with written notice to the Commission and the insurer. Licensing agencies may ask for a Certificate of Compliance from the Commission. More in [workers' compensation](https://www.brix.so/learn/workers-compensation).

> **Confirm before you rely on it**
>
> This is a summary of Maryland agency guidance as of October 2026, not tax or legal advice. Counties set local income tax rates and permit rules, and the 2025 changes are still being regulated. A Maryland CPA can tell you how the rules apply to your contracts.

BRIX tracks sales tax on quotes and invoices, syncs with QuickBooks, and tracks your MHIC, trade and county licenses so you're flagged before a renewal lapses. BRIX doesn't determine taxability, file returns or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.
- [Compliance and permit tracking](https://www.brix.so/#use-cases): Tracks licenses, safety documents and permits and flags renewals before they lapse.

## Frequently asked questions

### Is contractor labor taxable in Maryland?

Labor to install, erect, assemble or repair real property isn't taxable in Maryland, whether it's itemized or billed in a lump sum. Separately stated labor to install personal property isn't taxable either. Fabrication labor is taxable, and so are a few named services like commercial building cleaning.

### Do Maryland contractors pay sales tax on materials?

Yes. The Comptroller says real property contractors must pay the 6% sales tax on building materials and supplies when they buy them. You don't then charge tax to the customer on materials that become part of the real property, such as windows, doors or kitchen cabinets.

### Who needs an MHIC license?

Anyone who contracts with homeowners for home improvement work in Maryland, such as remodeling, roofing, siding, decks or windows. Subcontractors working for a licensed contractor don't need their own license. Since June 1, 2024, licensed contractors must carry at least $500,000 in general liability insurance.

### Does the 2025 Maryland 3% tax apply to contractors?

Not to your construction work. The 3% tax, effective July 1, 2025, applies to sales of data, IT and software publishing services under specific NAICS codes. You may see it on bills for software or IT services your business buys. Construction materials stay at 6%.

### Do I need a county plumbing license in Maryland?

The state Board of Plumbing licenses plumbers and natural gas fitters for work throughout Maryland. The exceptions are Baltimore County and the WSSC area, which covers Prince George's and Montgomery Counties. Those jurisdictions issue their own licenses and have their own plumbing code.

### Can I use a government agency's exemption certificate to buy materials in Maryland?

No. Tax Tip #18 says materials you incorporate into real property owned by governments, diplomatic embassies or credit unions are taxable when you buy them. You can use the exemption certificate of a qualifying Maryland nonprofit, or a volunteer fire, ambulance or rescue company, for its real property.

### What is Maryland's top income tax rate for 2025 and later?

For tax years after 2024, Maryland's top state rate is 6.50% on taxable income over $1,000,000 for single filers or $1,200,000 for joint filers. A 6.25% bracket starts at $500,001 for single filers. County income tax is added on top, up to 3.30% from 2026.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [Quarterly Estimated Taxes for Contractors: How They Work in 2026](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Delaware Contractor Taxes and Licensing: What Trades Need to Know](https://www.brix.so/taxes/delaware)
- [Virginia Contractor Taxes and Licensing: What Trades Need to Know](https://www.brix.so/taxes/virginia)
- [Pennsylvania Contractor Taxes and Licensing: What Trades Need to Know](https://www.brix.so/taxes/pennsylvania)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [Comptroller of Maryland — Business Tax Tip #18, Real Property Contractors and Maryland Taxes](https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/tips/business/bustip18.pdf) (checked 2026-10-19)
- [Comptroller of Maryland — Business Tax Tip #3, Sales and Use Tax on Out-of-State Purchases](https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/tips/business/bustip3.pdf) (checked 2026-10-19)
- [Comptroller of Maryland — List of Tangible Personal Property and Services Subject to Sales and Use Tax](https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/Sales_and_Use_Tax-List_of_TPP_and_Services.pdf) (checked 2026-10-19)
- [Comptroller of Maryland — Tax Alert: Sales and Use Tax Updates 2025–2026](https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/alerts/tax-alert-sales-and-use-tax-updates.pdf) (checked 2026-10-19)
- [Comptroller of Maryland — Tax Changes Beginning July 1, 2025 (news release)](https://www.marylandcomptroller.gov/content/dam/mdcomp/md/media/2025/07-01-2025-comptroller-highlights-tax-changes-beginning-today.pdf) (checked 2026-10-19)
- [Comptroller of Maryland — Tax Alert: Changes to Deductions and State and Local Income Tax Rates (2025 Session)](https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/alerts/tax-alert-changes-to-standard-and-itemized-deductions-and-to-state-and-local-income-tax-rates-from-the-2025-legislative-session.pdf) (checked 2026-10-19)
- [Maryland Department of Labor — Maryland Home Improvement Commission](https://www.labor.maryland.gov/license/mhic/) (checked 2026-10-19)
- [Maryland Department of Labor — MHIC: What Is Home Improvement](https://www.labor.maryland.gov/license/mhic/mhicwhatishi.shtml) (checked 2026-10-19)
- [Maryland Department of Labor — MHIC FAQ](https://www.labor.maryland.gov/license/mhic/mhicfaq.shtml) (checked 2026-10-19)
- [Maryland Department of Labor — State Board of Electricians](https://www.labor.maryland.gov/license/elec/) (checked 2026-10-19)
- [Maryland Department of Labor — Board of Plumbing](https://www.labor.maryland.gov/license/pl/) (checked 2026-10-19)
- [Maryland Department of Labor — Board of HVACR Contractors](https://www.labor.maryland.gov/license/hvacr/) (checked 2026-10-19)
- [Maryland Department of Labor — HVACR License Requirements](https://www.labor.maryland.gov/license/hvacr/hvacrlicreq.shtml) (checked 2026-10-19)
- [Maryland SDAT — 2024 Form 1 Annual Report](https://dat.maryland.gov/SDAT%20Forms/PPR_Forms/2024_Form_1_Manual.pdf) (checked 2026-10-19)
- [Maryland Code — Labor and Employment § 9-402](https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gle&section=9-402&enactments=false) (checked 2026-10-19)
- [Maryland Code — Labor and Employment § 9-206](https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gle&section=9-206&enactments=false) (checked 2026-10-19)
- [Maryland Workers' Compensation Commission — Sole Proprietor's Status Form (IC-02)](https://www.wcc.state.md.us/pdf/pdf_forms/sole_prop.pdf) (checked 2026-10-19)
- [Maryland Workers' Compensation Commission — FAQ](https://www.wcc.state.md.us/Gen_Info/WCC_FAQ.html) (checked 2026-10-19)

---
Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/maryland