Maryland R&D Tax Credit Summary
A taxpayer is allowed credits equal to percentages of qualified R&D expenses in Maryland. Effective June 1, 2014 there is a $4.5 million limit to the total amount of credit that can be granted to all claimants. If either of the credits applied for exceeds $4.5 million, the tax credit is prorated. Maryland follows the federal definition of qualified R&D and QREs, as defined by § 41(b) of the Internal Revenue Code in Maryland.
Businesses that have qualified research expenses (QREs) in Maryland may qualify for two state income tax credits at noted below.
(1) Basic R&D Tax Credit
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The basic credit is the credit for expenses not exceeding the Maryland base amount of 3% of the Maryland qualified R&D expenses paid or incurred by the taxpayer during the tax year.
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Basic tax credit is prorated if the total credits applied for exceed $5.5 million.
(2) Growth R&D Tax Credit
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The growth credit is granted for 10% of the amount by which the Maryland qualified R&D expenses paid or incurred by the taxpayer during the tax year exceeds the Maryland base amount for the taxpayer.
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Growth tax credit is prorated if the total credits applied for exceed $6.5 million.
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 Maryland base amount is the amount that is the ceiling for the amount of R&D Expenses that qualify for the basic credit and the floor for the amount of qualified R&D expenses that qualify for the growth credit.
Eligible Entities: C-Corporation, S-Corporations, LLCs, Partnerships
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In the case of a subchapter S corporation, partnership, limited liability company, or business trust, the amount of the credits computed for the pass-through entity shall be allocated among the owners as agreed to in writing by the owners. If there is no written agreement governing the allocation of this credit, the credit shall be allocated in the same proportion as other items are allocated for the taxable year.
Deadline for Tax Filing: Application due 11/15
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To qualify for the Basic and Growth R&D tax credit, a business must submit an application NO LATER THAN NOVEMBER 15 of the calendar year following the tax year in which the expenses were incurred.
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In addition, small businesses must submit documentation showing they had net book value assets, at the beginning or end of the tax year, as reported on the balance sheet, of less than $5 million.
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Commerce will prorate the credit if the total amount of Basic Credits applied for exceeds $5.5 million and if the total amount of Growth Credits applied for exceeds $6.5 million.
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Commerce will issue a tax credit certificate with the approved credit amount by February 15th.
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Because application dates follow the filing date for taxes, after receiving certification, the business may file an amended tax return for the year it is certified or it may claim the credit on an income tax return filed for any of the following 7 tax years. The business must attach a copy of the Department's certification to its tax return.
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Applications for Tax Year Ending 2018 will be available beginning June 1.
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The tax credit remains in effect until June 30, 2022, subject to extension by the General Assembly.
Data Required to Compute Credit
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Claim Period Qualified R&D Expenses (QREs)
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QREs for Prior 4 Years
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Gross Receipts for Prior 4 Years
Credit Carryforward:
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If the credit in any tax year exceeds the taxpayer’s tax liability for that year, the taxpayer may carry over the excess as a credit for succeeding taxable years until the earlier of:
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the full amount of the excess is used; or
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the expiration of the 7th taxable year after the taxable year in which the Maryland qualified R & D expense was incurred
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The credits carry over to the extent that the federal law allows. If the transaction involves a purchase of assets, the credits would not carry over because the company from which the assets are being purchased would remain a legal entity and therefore, the credits would remain with that company.
Refundable/Transferable Tax Credit: Yes
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R&D tax credits certified after December 15, 2012 are refundable for "small business" to the extent that the tax credits exceed the income tax liability for that taxable year.
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A small business means a for profit corporation, limited liability company, partnership or sole proprietorship with net book value assets totaling, at the beginning or the end of the taxable year for which the Maryland Qualified Research and Development expenses are incurred, as reported on the balance sheet, less than $5,000,000.
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