Maryland’s New Technology State Income Tax Credit – Application Forms Coming for the Credits Available

July 9, 2013

Keep checking the State’s website, www.choosemaryland.org , this month and next (July or August 2013), for the forms to apply for Maryland’s new technology state income tax credit. Since the total amount of credits available is limited, the State reviews applications on a “first-come, first-served” basis, and, as described below, the credit could even result in a grant-type refund, timing could be critical.

THE CONTEXT

Where a technology company should locate its “headquarters and base of operations” depends, of course, upon a number of factors. A state’s granting the company a temporary income tax credit is only one of them. For example, many states grant such credits and have a lower corporate tax rate, to boot. However, they probably don’t have a Ft. Meade (housing, among other agencies, the NSA, the Defense Information Systems, and the U.S. Cyber Command) or a National Institute of Standards and Technology, or the workforces that such agencies generate, and are not next door to the Department of Homeland Security and other federal agencies located in Washington, D.C. Furthermore, Maryland has reached-out further than most by including the following in its new statute:

(a) Maryland’s tax credit runs to the company, not to the investor. An out-of-state angle investor may have little use for a Maryland state income tax credit. However, the company can design its capital structure to encourage such investments.

(b) Maryland’s tax credit seems to benefit even a company that turns out not earning enough to be able to use the entire credit. The statute provides for a refund of approved credits if and to the extent the credit exceeds the company’s State income taxes. Such a refund seems to turn the credit into a grant encouraging the investment of risk capital.

Furthermore, Montgomery County, Maryland may tag-along by adding an additional cash incentive, as it did with the State’s biotech tax credit program.

THE DETAILS

Like most tax incentives, Maryland’s contains plenty of limitations upon who can qualify, how much the benefits can total, transfers by the investor, the longevity of the company, etc. Generally speaking, the credit seems to be designed mainly (if not exclusively) for early stage, but established, companies that focus upon products, not services, and own (or have licensed) a proprietary technology. The application forms will probably closely resemble those for Maryland’s biotech tax credit. (See the website cited above for a copy of the biotech forms.)

ACTION ITEMS

The point is that, if you are a technology company that may be able to use the credit, particularly to bring-in angel investments from out-of-state, now is the time to review the details of the program, start putting together a business plan for the use of such investment(s), and calendar periodic checks of Maryland’s website and with the Montgomery County Department of Economic Development. Keeping on top of this may prove critical in the “first-come, first-served” selection process.