Pass-Through Entities

A pass-through entity is required to file Maryland Form 510, Pass-through Entity Income Tax Return, if the entity is formed or incorporated in Maryland, does business in Maryland, or has Maryland income (or losses). The following are pass-through entities:

• Partnerships, as defined in § 761 of the Internal Revenue Code.
• Limited liability companies (defined under Title 4A of the Corporations and Associations Article of the Maryland Code Annotated) classified as partnerships, as defined in § 761 of the Internal Revenue Code, and not taxed as a corporation or disregarded as an entity.
• S corporations, as defined in § 1361 of the Internal Revenue Code.
• Business trusts, treated as partnerships, as defined in § 761 of the Internal Revenue Code.

New reporting requirements mandated by the Maryland General Assembly for certain multistate and manufacturing corporations also apply to pass-through entities.

A pass-through entity files Form 510 to report the pass-through entity's items of income, adjustments, gains, losses, and other required information. These items are passed through the entity to be taxed to the partners, shareholders, members or beneficiaries (referred collectively hereafter as "member"). Each member is then required to file the applicable Maryland income tax return and pay any tax due on the member's distributable or pro-rata share of the pass-through entity's items for the tax year. Payment of the Maryland income tax is not required with the filing of Form 510 unless the pass-through entity is subject to the nonresident member tax.

Nonresident members

If a pass-through entity has a nonresident member and any nonresident taxable income, then the pass-through entity is subject to the Maryland income tax. The pass-through entity is taxed on the nonresident taxable income, which is the sum of the nonresident members' distributive or pro-rata shares of the pass-through entity's income allocable to Maryland.

A "nonresident member" includes a nonresident individual member (defined as a person or fiduciary) and a nonresident entity member. A nonresident entity member is a corporation or pass-through entity that is not qualified or registered with the Maryland Department of Assessments and Taxation to do business in Maryland or not formed under Maryland law.

Tax rates

For tax years beginning after December 31, 2007, the tax rates are 7.5 percent for nonresident individual members (including nonresident fiduciaries) and 8.25 percent for nonresident entity members. These same rates apply to the sale or transfer of real property or tangible personal property by a nonresident individual or nonresident entity.

Additional filing requirements

The filing of Form 510 and the payment by the pass-through entity of the Nonresident Member Tax does not eliminate the requirement that all nonresident and resident members of the pass-through entity must file the applicable Maryland income return. The nonresident member can claim a credit for the amount of tax paid by the pass-through entity that is attributable to that nonresident member's share of the pass-through entity's nonresident taxable income.

When the nonresident member tax that is due is expected to exceed $1,000 for the tax year or period, the pass-through entity must file Maryland Form 510D, Pass-Through Entity Declaration of Estimated Tax, and make quarterly estimated payments.

For more detailed information, including information on certain nonresident members that are exempt, see Administrative Release No. 6, Taxation of Pass-Through Entities Having Nonresident Members. See also Md. Code Ann., Tax-Gen. § 10-102.1 and C.O.M.A.R. 03.04.07.

Extensions

A pass-through entity may obtain an automatic six-month extension of time to file Form 510 by using Maryland Form 510E, Pass-through Entity Application for Extension. For more information about obtaining an extension, see Administrative Release No. 4, Extension of Time for Filing Maryland Individual, Corporation, Partnership, Limited Liability Company, Fiduciary Income Tax Returns, and Estate Tax Returns.