Are R&D Tax Credits Available in Maryland?

Yes. The state of Maryland provides the Research and Development (R&D) Tax Credit for businesses with qualified research expenses (QREs) in Maryland may qualify for two state income tax credits, the Basic R&D Tax Credit and the Growth R&D Tax Credit. Here is a summary of the credits:

  • The Basic R&D Tax Credit equals three percent (3%) of QREs that do not exceed the Maryland Base Amount.
  • The Growth R&D Tax Credit equals ten percent (10%) of QREs in excess of the Maryland Base Amount.
  • The Base Amount is determined by dividing the aggregate QREs by the aggregate Maryland gross receipts for the four years prior to the credit year.
  • The total amount of credits approved for all businesses in the state may not exceed $12 million.
  • Maryland follows the federal definition of qualified R&D and QREs, as defined by § 41(b) of the Internal Revenue Code in Maryland.
  • The business must submit an application by November 15th for expenses incurred in the previous calendar year.
  • R&D tax credits certified after December 15, 2012, are refundable for "small businesses" to the extent that the tax credits exceed the income tax liability for that taxable year.
  • Credits that exceed the income tax for a taxable year, may be carried forward for the next seven years or until used.
  • All members of a controlled group of corporations are treated as single taxpayers for the purposes of the credit.
  • The tax credit remains in effect until January 1, 2026, subject to extension by the General Assembly.

Maryland R&D Tax Credit Case Study

An Annapolis firm designs components for the telecommunications industry. The company claims R&D credits each year for the design and development activities of its engineers. This project involved a multi-year study.

The Company qualified for The federal R&D Tax Credit of $847,000 and an additional $147,000 in Maryland state R&D Tax Credit.

Total QREs
Total QREs
Year 4
Year 3
Year 2
Year 1
Total $9,800,000 $847,000 $3,000,000 $149,500

You can read more about this Maryland tax credit case study here.

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.

Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.

All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.