The One Maryland Tax Credit Program provides two income tax credits to businesses that initiate major investment projects in Maryland’s most economically distressed jurisdictions. The Project Tax Credit can be as much as $5 million and the Start-Up Tax Credit can be as much as $500,000.
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, for the most recent 24-month period, an average rate of unemployment that is 150% higher than the statewide average or an average per-capita personal income that is equal to or less than 67% of the statewide average, and includes a county (including Baltimore City) that no longer meets one of these requirements, but did so at some time during the preceding 12 months.
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 Commerce (DOC) of its intent to seek certification before either any project or start-up expenses have been incurred or include toward certification any employee hired prior to notifying the department.
The business must be certified by DOC as a qualified business entity eligible for the One Maryland Tax Credit. The business must create at least 25 new, full-time qualified positions at the project within 24 months of the date the project was placed in service.
For tax years beginning after December 31, 2010, a qualified business entity, which has been certified for the tax credit, may claim a prorated share of the One Maryland Tax Credit, if:
- the number of qualified positions falls below 25, but does not fall below 10, and
- the qualified business entity has maintained at least 25 qualified positions for at least five years.
The business must locate or expand in a Priority Funding Area in a qualified distressed county. The following counties are qualified distressed counties for the One Maryland Tax Credit:
- Baltimore City
The project must be primarily engaged in an eligible activity as defined by the statute.
Only employees hired to fill the new positions that are paid more than 150% of the federal minimum wage are counted toward the credit. A position must be filled for 12 months before it is a "qualified position" for the tax credit.
How the credit is calculated:
The credit for start-up costs is the lesser of 100% of eligible start-up costs (up to $500,000), less any credits taken in prior years, or $10,000 for each employee working in the qualified positions. The credit for project costs is the lesser of 100% of eligible project costs (up to $5 million), less any credits taken in prior years, or the state income tax liability for the tax year from the project.
No credits may be claimed against the insurance premium tax for the first year or for up to four years after the project is placed in service.
If the credit is more than the tax liability, the unused credit may be used up over a 14-year period.
At any time after the 4th 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 tax income and a portion of excess unused credits for both project and start-up costs may be refunded.
If the majority of the qualified positions are paid at least 250% of the federal minimum wage, then the refundable years will begin after the 2nd tax year rather than the 4th tax year.
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.
For Tax Years beginning after December 31, 2012 the One Maryland Tax Credit must be claimed in the Form 500CR section of an electronically filed Maryland return. The taxpayer must include a copy of the final certificate from the Maryland Department of Business and Economic Development, and complete the Form 500CR section within the appropriate electronic Maryland Income Tax Return - Form 500 for Corporations, Form 510 and 510 Schedule K-1 for Pass-Through Entities (PTE's), and Form 502 or 505 for Individuals.
Note: PTEs must use the Maryland 510, Schedule K-1 and complete the One Maryland Tax Credit section to pass this credit on to its members. PTEs do not reflect the distributive or pro rata share of the One Maryland Credit; instead, they report the distributive or pro rata share of the component parts of the credit and the members compute the amount of credit on their separate returns.
An organization that is exempt from taxation under §501(c)(3) or (4) of the Internal Revenue Code may apply the credit as a credit against the income tax due on unrelated business tax income. If the tax exempt entity is a trust, it will use the Business Tax Credit Form for Fiduciary Taxpayers Form 504CR, in lieu of Form 500CR. Currently, there is no requirement for fiduciary taxpayers to claim a business tax credit electronically, as no Maryland electronic fiduciary tax return has been developed.
Insurance premium 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.
Maryland Department of Commerce
Office of Finance Programs, Tax Incentives Group
401 East Pratt Street
Baltimore, MD 21202
Phone: 410-767-6438 or 410-767-4980 or 1-877-821-0099