Businesses that have qualified R&D expenditures in Maryland may qualify for two state income tax credits, the Basic R&D Tax Credit and the Growth R&D Tax Credit.
The tax credit remains in effect until January 1, 2020, subject to extension by the General Assembly.
Basic R&D Tax Credit
Three percent (3%) of eligible R&D expenses that do not exceed the Maryland Base Amount. If the total credits applied for exceed $4.5 million, the business's Basic tax credit is prorated.
Growth R&D Tax Credit
Ten percent (10%) of eligible R&D expenses in excess of the Maryland Base Amount. If the total credits applied for exceed $4.5 million, the business's Growth R&D tax credit is prorated.
DBED follows the federal definition of qualified R&D and qualified R&D expenses. To qualify the business must incur Qualified Research and Development Expenses, as defined by § 41(b) of the Internal Revenue Code in Maryland. The business must submit an application to DBED by September 15th for expenses incurred in the previous calendar year.
Small Business Refund
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. 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.
- To qualify for the Basic and Growth R&D tax credit, a business must submit an application NO LATER THAN SEPTEMBER 15 of the calendar year following the tax year in which the expenses were incurred.
- 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.
- DBED will prorate the credit if the total amount of Basic Credits applied for exceeds $4.5 million and if the total amount of Growth Credits applied for exceeds $4.5 million.
- DBED will issue a tax credit certificate with the approved credit amount by December 15th.
- Because application dates follow the filing date for taxes, after receiving certification, the business may file an amended tax return for the year.