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.
FEDERAL
|
MARYLAND
|
|||||
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
Year 4
|
$3,000,000
|
$261,333
|
$3,000,000
|
$149,500
|
||
Year 3
|
2,600,000
|
224,000
|
NA
|
NA
|
||
Year 2
|
2,200,000
|
184,333
|
NA
|
NA
|
||
Year 1
|
2,000,000
|
177,334
|
NA
|
NA
|
||
Total | $9,800,000 | $847,000 | $3,000,000 | $149,500 |
You can read more about this Maryland tax credit case study here.