The state of Maryland’s Research and Development Tax Credit Program will remain in effect until June 30, 2022 because of a recent tax extension made by the General Assembly. These R&D credits were created to encourage Maryland businesses to expand their development and research efforts to receive benefits from the state’s Department of Commerce.
What are the Benefits of Maryland’s State R&D Tax Credits?
Maryland offers businesses both Basic and Growth R&D tax credits for eligible expenses incurred with a limit of $12 million for all businesses that apply. The Basic R&D tax credit provides businesses with 3% of eligible R&D expenses that don’t exceed Maryland’s base amount. If the total credits applied for exceeds $5.5 million, the business’s Basic tax credit is prorated.
Maryland’s Growth R&D tax credit offers companies 10% of eligible R&D expenditures over Maryland’s base amount. If the total credits applied for are over $6.5 million, the business’s Growth R&D tax credit is prorated.
Small businesses are especially rewarded through R&D in the state of Maryland. A small business is defined as a for-profit corporation, LLC, partnership or sole proprietorship whose net profits are less than $5 million for the tax year. In an effort to further drive smaller businesses to take part in growth and innovation, this credit is refundable for cash. The tax credits must be certified after December 15, 2012 and exceed the income tax liability for that taxable year.
What is the First Step to Applying?
According to the Maryland state website, applications for the state of Maryland R&D tax credits must be received no later than November 15th of the calendar year following the tax year in which the expenses were incurred. By February 15th, the Maryland Commerce will issue a tax credit certificate with the approved credit. Tax credits can also be applied to previous years if a business applies to amend their taxes for that year and this can extend to the previous seven years as well.
Qualifying expenditures include wage, contractor, and supply expenses related to a taxpayer’s attempts in Maryland to develop or improve the functionality or performance of its products, manufacturing processes, software, or other components.
Collecting gross receipts for the tax year which you are claiming credits as well as the previous seven years is the first step in determining a business’ R&D tax credits. Activities that can be claimed under R&D credits are limited and must be performed within the state only, so hiring a team of national tax experts to help guide you through the process will ensure that your company gets all its eligible credits.
If you think your business may qualify for Maryland’s R&D tax credits, reach out to our team at National Tax Group by calling (561) 257-3436 to start your free analysis.