Q: As a practicing physician contractor in Maryland, does my LLC need to be in Maryland?

A: You are mixing up two totally different things: (1) the right of a legal entity to regularly conduct business in Maryland; and (2) which state you owe and pay income taxes. If it was as easy as where you organize your pass-through entity, everyone would create an LLC in the states with no state income taxes (DE, FL,e.g.) and pay no state income tax! No, that's not how it works.

Any business entity that regularly conducts business in a state must register to do business in that state, regardless of where it is originally organized and created. Rather than pay two states (VA and MD) to organize and do business in both states, if the LLC is only regularly operating in MD you should just organize it in MD and pay MD the annual fees (about $350/year, plus a small personal property tax return).

As for income taxes, if you work in one state, and reside in another state, there are rules regarding where you pay income taxes, and it often depends on whether the states have reciprocity arrangements in place. Generally, if there's a reciprocity arrangement between the state where you reside and the state where you work, you file and pay income taxes in the state where you reside; otherwise, you pay taxes in the state where you derive the income, so if you reside in state A, but earn income in state B, you file a resident tax return in state A and report income earned from state A if any, and file a non-resident tax return in state B and pay state B for taxes owed on income earned in state B. The specific rules for each reciprocity arrangement vary by agreements entered into among the states. Maryland, Virginia, West Virginia, Pennsylvania and the District of Columbia all have agreements in place with each other, and generally to be exempt from paying taxes in any state you must declare residence in a different state an not reside in the state where you want to be exempt from taxes more than 183 days per year, do not maintain an abode (house or apartment) in the state, and only earn wage or salary income from the state. It is unclear where you reside, and it is further unclear whether you would qualify for wage or salary income (it depends on how you elect to be paid by your LLC and whether you will declare corporate taxation status and draw a salary). These questions require a meeting with a tax accountant, but do not govern where you organize and register the LLC. If you reside and work only or primarily in MD, then you pay income taxes in MD, and you should organize you LLC in MD. There's no way to live and work in MD, but pay VA (or any other state's) income tax rates.