You're spot on.  The losses were reported on the Federal return every year (and the corresponding amount on the PA returns, which disallows deductions for rental income up to the amount of any other rental income, of which there is none).

The tax withholding in MD on a sale is solely based on the proceeds (at about 8%) and as well know, the proceeds has little to no relevance to actual gain.  If I was totally exempt (as for sale of a personal residence) the MW506RS would be applicable, but in this case, nope. ;-(

Lesson to others...even if it's not required, if you've got activity in a state, try to get that return in.  I hate that it's a bit of a money-grab for accountants, but it might eventually be beneficial.  Oh....and don't trust your software to know the rules.  I'm guessing the Intuit products don't really pay attention to the state you say your operation (in this case the rental) is in and also probably just noted 'reciprocal state' and didn't require MD return.