One Maryland Economic Development Tax Credit

Certain businesses that establish or expand a business facility in a priority funding area or as part of a project approved by the Board of Public Works, and that are located in a "distressed" Maryland county, may be entitled to a tax credit for costs related to the new or expanded facility. A "distressed" county has an average rate of unemployment that is 150 percent higher than the statewide average or an average per-capita personal income that is equal to or less than 67 percent of the statewide average.

The credit may be taken against corporate income tax, personal income tax or insurance premiums tax. The same credit may not, however, be applied to more than one tax type.

Sole proprietorships, corporations, tax-exempt nonprofit organizations 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:

The business must notify the Maryland Department of Business and Economic Development of its intent to seek certification before either new employees are hired to fill qualified new positions or eligible costs are incurred.

The business must, over a two-year period, create at least 25 positions at the new or expanded business facility that are:

Full-time.
Of indefinite duration.
Paid at least 150 percent of the federal minimum wage.
Located in a qualified distressed county in Maryland.
Filled.

To qualify for the project tax credit, the business must also spend at least $500,000 in project costs on the project. No minimum expenditure is required for the "start-up" tax credit. The business must also submit a copy of the certification from the Department of Business and Economic Development with the tax return.

How the credit is calculated:

The credit for start-up costs is the lesser of 100 percent of eligible start-up costs (up to $500,000), less any credits taken in prior years, or $10,000 multiplied by the number of employees that have filled the newly created, qualified positions.

The credit for project costs is the lesser of 100 percent of eligible project costs (up to $5 million), less any credits taken in prior years, or the state income tax liability for the taxable year from the project.

No credit for costs may be claimed against the insurance premium tax for the first year or for the next four years after the project is placed in service.

If the credit is more than the tax liability, the unused credit may be carried forward for the next 14 tax years. At any time after the fourth tax year after the tax year in which the project is placed in service, but before the expiration of the 15th year after the project is placed in service, the business may apply the excess credit for project costs to non-project-related taxable income and a portion of excess unused credits for both project and start-up costs may be refunded.

If the majority of the positions created are paid at 250 percent or more of the minimum wage and the first notice of intent to seek certification is filed with the Department of Business and Economic Development on or after July 1, 2002, the excess credit for project costs may be used against the tax on non-project income, and a portion of excess unused credit for both project and start-up costs may be refundable two years earlier.

For any tax year, the total of any refund claimed for the project tax credit and the amount of that credit used against the taxpayer's Maryland tax liability on non-project-related income, may not exceed state and local taxes that must be withheld from the newly hired employees. For the start-up tax credit, the amount to be refunded may not exceed the state and local taxes required to be withheld from the newly hired employees.

Documentation required:

Corporate income tax (including tax exempt, non-profit organizations):

Form 500CR must be completed and submitted with the income tax return (Form 500). The taxpayer must attach a copy of the certification from the Maryland Department of Business and Economic Development to Form 500CR.

Personal income tax:

Form 500CR must be completed and submitted with the income tax return (Form 502 or 505). 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 505), corporate (Form 500) or pass-through entity (Form 510) income tax returns. The taxpayer must also attach a copy of the certification from the Maryland Department of Business and Economic Development to Form 500CR.

Insurance premiums tax:

Documentation of the credit shall be maintained by the taxpayer in their files and be made available to the Insurance Commissioner, on request, in accordance with COMAR 31.06.04.03. The documentation should include documents from the agency granting the credit and a list of the names and telephone numbers for the taxpayer's staff who are directly involved in granting the credits. All information shall be retained for a minimum of three years from the date of the filing of the final tax return on which the credit is taken.

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