This month we are continuing our “What’s Happening in Your State?” series, where we provide information about the R&D credit in a different state each month. This month, we are focusing on Maryland!
What are the specificities of the Maryland R&D Tax Credit ?
Like some of the states we’ve discussed previously, Maryland is an application state. That means that you can only apply for the R&D credit for the most recent tax year; you cannot amend your tax return to claim the R&D credit for previous years. The application deadline for Maryland is November 15.
To be eligible for the Maryland R&D credit, you must first have qualified research activities within the state of Maryland. The qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code, but only activities occurring within Maryland are capturable towards the Maryland R&D credit.
The tax credit is equal to 10% of eligible R&D expenses in excess of the Maryland base amount. Because it is an application state, if the total credits applied for from all companies in Maryland exceed the statutory cap amount, each business’s R&D tax credit is prorated. The total statutory cap for tax year 2021 is $12 million, with $3.5 million set aside for small businesses. A single taxpayer cannot receive a tax credit exceeding $250,000.
The credit is refundable for small businesses to the extent that the R&D credit exceeds the income tax liability for that taxable year. A small business is defined as a for profit corporation, LLC, partnership, or sole proprietorship with net book value assets totaling $5 million.
What is the application process for the credit in Maryland State ?
The application process is as follows:
- A taxpayer must submit an application no later than November 15 of the calendar year following the tax year in which the Maryland qualified research expenses were incurred.
- If the taxpayer is a small business, it must submit documentation demonstrating net book value assets at the beginning or end of the year of less than $5 million.
- Commerce will then review applications and prorate if the credits applied for by non-small businesses exceeds $8.5 million and/or if the total amount of credits applied for by small businesses exceeds $3.5 million.
- Commerce will issue a tax certificate with the approved amount by February 15 of the following year.
- After receiving the certification, a business may file an amended tax return for the year it is certified, or it may claim it on the income tax return for any of the following 7 tax years.
- The taxpayer must attach a copy of the Department’s certification to its tax return.
While the Maryland credit can be beneficial, it is still important to work with a provider who is familiar with the nuances of the Maryland credit calculation and application process to ensure you are maximizing the benefit for your business!
Interested in learning more about how your company may be able to take advantage of the Maryland R&D credit? Submit your information here!