Research and Development Tax Credit

Businesses that incur qualified research and development expenses in Maryland are entitled to a tax credit. The total credits for all businesses may not exceed $6 million per year.

This credit is available for tax years beginning after December 31, 1999, but before January 1, 2011.

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:

The business must invest in research and development activities in Maryland during the tax year. The business must also submit an application for the credit to the Maryland Department of Business and Economic Development by September 15 of the year following the tax year in which the expenses were incurred. The Maryland Department of Business and Economic Development will certify the amount of credit available to the business by December 15.

How the credit is calculated:

There are two types of research and development tax credits available to businesses:

Basic Research and Development Credit: 3 percent of the Maryland qualified research and development expenses paid during the tax year, up to the Maryland base amount.
Growth Research and Development Credit: 10 percent of the Maryland qualified research and development expenses paid during the year that exceed the Maryland base amount.

The Maryland base amount is the average annual gross receipts of the business for the four preceding tax years multiplied by the Maryland base percentage. For most businesses, the Maryland base percentage is the percentage that Maryland research and development expenses for the preceding four tax years is of total gross receipts for those years.

If the credit is more than the tax liability, the unused credit may be carried forward for the next seven tax years.

Documentation required:

The business must file an amended income tax return (Form 500X or 502X) and submit a copy of the certification received from the Maryland Department of Business and Economic Development with the amended return.

Corporate income tax:

Form 500CR must be completed and submitted with the income tax return (Form 500X).

Personal income tax:

Form 500CR must be completed and submitted with the income tax return (Form 502X). 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 502X), corporate (Form 500X) 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