Tax Credits Against Local Taxes
Enterprise Zone Real Property Tax
This is a ten-year credit against local real property taxes on a portion of real property improvements. The credit is worth 80 percent the first five years, and decreases 10 percent annually thereafter to 30 percent in the tenth and last year. In Focus Areas, the credit does not decline; it remains level at 80 percent for ten years. (See Enterprise Zone tab for more information).
Manufacturing and Research and Development Exemption (Personal Property Tax Exemption)
As a means of encouraging the growth of manufacturing businesses in Maryland, state law authorizes local governments to exempt from taxation personal property used in manufacturing. Application for a manufacturing exemption throughout the state, including research and development activities must be submitted on September 1st of each year. A company is required to: Explain the manufacturing or research and development process of your business in detail; Supply an itemized list of assets for which you are claiming an exemption; and describe how the assets are used in your business process.
For example: Personal property assessed at $15 million value would be taxed at $5.82/$100. This tax exemption would save $873,000 in personal property taxes annually.
Wage Tax Credits Against State Income Taxes
One Maryland Tax Credit
Qualified businesses located in Baltimore City are eligible for up to $5.5 million in tax credits. Tax credits may be claimed against State income, insurance premium, or financial institution franchise tax.
- Project tax credits of up to $5,000,000 are based on qualifying costs and expenses incurred by the business entity in connection with the acquisition, construction, rehabilitation, installation, and equipping of an eligible economic development project. The business entity must incur at least $500,000 in eligible project costs and must create at least 25 new qualified positions.
- Start-up tax credits of up to $500,000 are based on a business' cost to furnish and equip a new location for ordinary business functions and to move to a qualified distressed county from outside Maryland. (50 qualified new positions are required to qualify for the full $500,000 credit.)
A business entity has up to 14 years after the tax-year in which the project is placed in service to take the credit:
- If the full project tax credit has not been taken against the state tax arising out of or generated by the project during the first 4 years after the taxable year in which the project was placed in service, the business may take the credit against State tax for other income and claim a refund, up to the amount of State taxes that the business is required to withhold from the wages of qualified employees at the project.
- If the full start-up tax credit has not been taken against the business' state tax during the first 4 years after the taxable year in which the project was placed in service, the business may also claim a refund, up to the amount of State taxes that the business is required to withhold from the wages of qualified employees at the project.
The business entity must notify the Department of Business and Economic Development (DBED) before hiring any qualified employees or incurring any costs intended to earn tax credit. The project must be approved and certified by the Secretary of DBED.
Job Creation Tax Credit
The Job Creation Tax Credit Act promotes job creation by providing income tax credits to business owners who create a certain number of new full-time jobs. Positions filled after December 31, 1996 must be newly created in a single Maryland location. In order to receive the job creation tax credit, businesses must declare their intention to use the credit from the Department of Business and Economic Development (DBED) before hiring qualified employees. The business entity must create 60 new jobs in a 24-month period. In designated priority funding areas, the minimum is 25 new jobs. Outside priority funding areas, the minimum is reduced to 30 new jobs if the aggregate payroll for the qualified positions is greater than a threshold amount equal to the product of 60 times the state's average annual salary (currently $2.2 million). Also, positions must be a result of establishing or expanding a business facility in a single location in the state; must pay at least 150 percent of the federal minimum wage; must be full-time; and must not be created through a change in ownership of a trade or business.
Credit granted will be the lesser of $1,000 or 2-1/2 percent of a year's wages for each new, full-time job calculated on an aggregate basis. If the new or expanded facility is located in a state enterprise zone, a federal empowerment zone or a Department of Housing and Community Development (DHCD) designated neighborhood, then the credit is increased to the lesser of $1,500 or 5 percent of a year's wages for each new, full-time job. The maximum credit that is allowed during any credit year for a single facility is $1 million. Unused credits may be carried forward for up to five tax years following the year in which the credit could first be used to reduce tax liability. The credit may not be used to reduce taxes owed for earlier years.
Maryland Job Recovery Tax Credit:
New employees hired between March 25, 2010 and December 31, 2010 who have previously exhausted their unemployment benefits in the previous 12 months (and not working full-time immediately prior to date of hire) will make companies in Baltimore City eligible for $5,000 in income tax credits that become refundable if the company’s tax liability has already been exhausted.
For more information, please visit: http://www.dllr.state.md.us/taxcredit/jcrtcflyer.pdf
A Maryland state tax credit gives Maryland employers a 50 percent tax credit for every dollar spent on employee transit expenses, worth up to $30 per employee per month in tax savings. The tax credit can be taken against the state income tax, financial institution franchise tax, and insurance premium tax.
Enterprise Zone Income Tax Credits
These are one- or three-year credit for wages paid to new employees. The general credit is a one-time $1,000 credit per new worker. For economically disadvantaged employees, the credit increases to a total of $6,000 per worker distributed over three years. When located in a Focus Area, the general credit is a one-time $1,500 credit per new worker.
Federal Historic Preservation Tax Incentive (20% tax credit)
The Federal historic preservation tax incentive program offers a 20% income tax credit to any project that is designated as a certified rehabilitation of a certified historic structure by the Secretary of Interior. The 20% credit is available for properties substantially rehabilitated for commercial, industrial, agricultural, or rental residential purposes, but it is not available for properties used for primary residences.
The Federal historic preservation tax incentive program is jointly administered by the U.S. Department of Interior and the Department of Treasury. The National Park Service acts on behalf of the Secretary of Interior, in partnership with the State Historic Preservation Officer in each State.
10% Federal Rehabilitation Tax Credit
The 10% Federal rehabilitation tax credit applies only to non-historic, non-residential buildings built before 1936. The rehabilitation must be substantial and meet a specific physical test for retention of external walls and internal structural framework. There is no formal architectural review process for rehabilitations of non-historic buildings.
Maryland Rehabilitation Tax Credit
The Heritage Preservation Tax Credit Program provides Maryland income tax credits equal to 20% of qualified rehabilitation expenditures for the substantial rehabilitation of a certified heritage structure. The credit is available for owner-occupied residential property as well as income-producing property. The rehabilitation must conform to the Secretary of Interior’s Standards for Rehabilitation and must be certified by the Maryland Historical Trust. If the credit exceeds the taxpayer’s tax liability, a refund may be claimed by the amount of the excess.
Wage Tax Credits Against Federal Income Taxes
Federal Commuter Tax Credit
The federal government allows payroll tax savings on amounts up to $100 per employee per month to employers and employees with Commuter Choice Maryland programs. Federal law allows employers to offer three different types of transit/vanpool benefits: employer-paid, employee-paid pre-tax deduction, and combination (for example, the employer and employee share costs). Qualified first-year wages are qualified wages you pay or incur for work performed by a targeted group employee during the 1-year period beginning on the date the individual begins work for you. Qualified wages are generally wages subject to the Federal Unemployment Tax Act (FUTA) without regard to the FUTA dollar limit, but not more than $6,000 each tax year for each employee ($3,000 each tax year for a summer youth employee).
State of Maryland Research and Development Tax Credit
Businesses that incur qualified research and development expenses in Maryland are entitled to a tax credit. For a business to be eligible, it must apply to and be certified by the Maryland Department of Business and Economic Development.
Basic R&D Tax Credit
The Basic R&D tax credit is 3 percent of eligible R&D expenses that do not exceed the firm’s average R&D expenses over the last four years. However, if the total amount of credits claimed by all firms exceeds $3 million, the Basic R&D tax credit will be prorated. Moreover, if there is money left over from the Growth R&D tax credit allotment, this money will be added to the $3 million.
Growth R&D Tax Credit
The Growth R&D tax credit is 10 percent of eligible R&D expenses that exceed the firm’s average R&D expenses over the last four years. However, if the total amount of credits claimed by all firms exceeds $3 million, then the Growth R&D tax credit will be prorated. Moreover, if there is money left over from the Basic R&D tax credit allotment, this money will be added to the $3 million.