Biotechnology Investment Incentive Tax Credit

Description:

Businesses may be allowed a tax credit of up to 50 percent of the amount contributed to a qualified Maryland biotechnology company. The investor, after making the proposed investment, cannot own or control more than 25 percent of the biotechnology company.

The tax credit must be claimed for the taxable year in which the investment in the qualified biotechnology company is made.

The credit may be taken against corporate income tax or personal income tax.

Sole proprietorships, corporations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts, may claim the tax credit.

To qualify for the credit:

Qualified investors must contribute at least $25,000 in cash or cash-equivalent to a "qualified biotechnology company" that is certified by the Maryland Department of Business and Economic Development (DBED) based on a number of criteria. Qualified investors must also be required to file an income tax return to any jurisdiction. Credits may be claimed for no more than $250,000 per investment in a qualified biotechnology company. DBED may not certify tax credits for investments in a single qualified biotechnology company that are in the aggregate more than 15 percent of the total amount appropriated to the Maryland Biotechnology Investment Tax Credit Reserve Fund for that fiscal year. DBED may not issue initial credit certificates in excess of the amount appropriated to the Reserve Fund for that fiscal year in the state budget as approved by the General Assembly.

A qualified Maryland venture capital firm must have:

• Been organized to invest in privately held companies engaged in research, development or commercialization of innovative proprietary technology;
• At least two principles that each have at least five years of venture capital experience
• At least one year of experience investing in biotechnology or biopharmaceutical companies; and
• Its base of operations in Maryland.

A qualified biotechnology company must have:

• Its headquarters and base of operations in Maryland;
• Fewer than 50 full-time employees; Been in active business no longer than 10 years; and
• cannot be a publicly traded company.

At least 30 days before making an investment, the business must submit an initial credit certificate application to DBED. Upon approval (within 30 days of DBED’s receipt of the application), the applicant will receive an initial credit certificate stating the amount of the tax credit and will have 30 days to make the investment. Within the following 10 days, the investor must notify DBED that the investment has been made. A final credit certificate will be issued to the applicant stating the amount of the tax credit to which the applicant is entitled. A copy of the final credit certificate must be filed with the taxpayer’s income tax return.

How the credit is calculated:

The credit allowed is 50 percent of the amount contributed during the tax year, not to exceed $250,000 for a corporation or Maryland venture capital firm. The amount in excess of the state tax liability may be refunded. The total amount of credits approved by DBED each year is limited; initial credit certificates will be issued on a first-come-first-served basis. A prorated percentage of the credit is subject to recapture if an investor disposes of the ownership interest in the qualified biotechnology company within two years after the tax year in which the credit was earned.

Documentation required:

Corporate income tax

Form 500CR must be completed and submitted with the income tax return (Form 500) along with the final credit certificate issued by DBED.

Personal income tax

Form 500CR must be completed and submitted with the income tax return (Form 502 or Form 505) along with the final credit certificate issued by DBED. If the business is a pass-through entity, Form 500CR must be prepared for the pass-through entity and submitted with the entity’s income tax return (Form 510). A modified federal Schedule K-1 provided by the pass-through entity to its members must separately state their shares of the credit. Individuals or entities must attach this statement to the Form 500CR submitted with their personal (Form 502 or Form 505), corporate (Form 500) or pass-through entity (Form 510) income tax returns.

For more information, contact:

Maryland Department of Business and Economic Development
Division of Business Development, Tax Incentives Group
217 E. Redwood Street
Baltimore, MD 21202
Phone: 410-767-6438 or 410-767-4980
E-mail: taxincentives@choosemaryland.org