"Compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to withholding. "
No, it just appears to be a contradiction but it's not.
What this phrase ("who is teleworking in Maryland ") means is that an otherwise nonresident of Maryland relocated to Maryland to physically work in MD (e.g. to a relative's house).
Since the telecommuter is physically working in Maryland, this is Maryland source income even though he/she is for tax purposes a nonresident..
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