Maryland Releases 60-Day Report on Revenue Effects of OBBBA

The Maryland Bureau of Revenue Estimates has released its 60-day report documenting the impact the One Big Beautiful Bill Act (OBBBA, P.L. 119-21) will have on the state’s corporate and individual revenue streams. The report focuses on the law’s major provisions affecting Maryland in an attempt to improve revenue forecasting and assist the state in implementing tax laws that depend on federal statutes.

Business Tax Provisions

In its report, the Bureau summarizes several important OBBBA changes affecting Maryland corporate revenue:

• Permanent reinstatement of full expensing for domestic research and experimental (R&E) expenses, retroactive to 2022 for some companies;
• Modifications to international tax rules established under the Tax Cuts and Jobs Act;
• Allowance of 100% bonus depreciation for manufacturers and other companies engaged in qualified production activities under new Section 168(n) of the Internal Revenue Code;
• Enhancements to Section 179 expensing and the Section 199A qualified business income deduction;
• Favorable computational changes to adjusted taxable income used for the Section 163(j) business interest deduction limit; and
• Permanent allowance of 100% bonus depreciation under Section 168(k).

The changes will result in sharp decreases in total corporate revenue in the near term ($74.1 million for fiscal 2026 and $209.8 million in fiscal 2027), but losses will become less pronounced over time.

Maryland is a rolling conformity state unless changes to federal tax law will have a state tax revenue impact of at least $5 million in the current fiscal year (fiscal 2026). The Bureau has reported that the fiscal effects of three of the OBBBA’s corporate changes will trigger temporary automatic decoupling for tax years 2025 and before:

• Full R&E expensing of Section 174 costs;
• The new 100% production property depreciation under Section 168(n); and 
• The favorable changes to the interest deduction limitation computed under Section 163(j).

Maryland will decouple from those provisions for the 2025 tax year and prior tax years, including any retroactive application. Absent legislative action to permanently decouple, the state will conform to those OBBBA changes beginning in 2026.

Individual Income Tax Provisions

The Bureau report also lists important individual provisions in the OBBBA that will affect Maryland:

• Permanent extension of, and enhancements to, many of the TCJA’s significant temporary tax reductions, such as reduced federal tax rates and brackets;
• Creation of temporary deductions for qualified tips, overtime pay, and auto loan interest, with an additional deduction for individuals at least 65 years old (all subject to income phaseouts); and
• Temporary increase in the state and local tax cap to $40,000, with a phaseout for high earners (cap reverts to $10,000 in 2030).

Those changes will result in a decrease in personal income tax revenue of $21 million in fiscal 2026, but because of deduction changes, revenue will increase by $88.2 million in fiscal 2027.

Fiscal Impact on Maryland

According to the report, all the changes will reduce general fund revenue by $77.9 million in fiscal 2026 and $71.4 million in fiscal 2027. Special funds will decrease by $17.2 million in fiscal 2026 and $50.1 million in fiscal 2027. Local income tax revenue will decrease by $11 million in fiscal 2026, then increase by $61.9 million in fiscal 2027.

Most revenue loss is timing-related because deductions are accelerated but would have occurred over a longer period.

According to the report, pending federal regulations to implement the OBBBA, the dynamic nature of taxpayer behavior, and the interaction with recent state tax legislation all create significant uncertainty, so the estimates are preliminary and subject to revision.