The ESCC Tax Credit provides income tax credits for expenses related to federal security clearance costs, construction of Sensitive Compartmented Information Facilities (SCIFs) and first-year leasing costs for small businesses doing security-based contract work.
Security Clearance Administrative Expenses Tax Credit
A business may qualify for an income tax credit up to $200,000 per taxable year for qualified security clearance administrative expenses.
Qualified expenses include:
- Processing application requests for federal security clearance,
- Maintaining, upgrading or installing computer systems in Maryland that are required to obtain federal security clearance, and
- Training employees in the State to administer the clearance application process.
Sensitive Compartmented Information Facility Costs Tax Credit
A business may also claim a credit against its Maryland income tax for costs related to the construction or renovation of a SCIF located in Maryland. The SCIF must be accredited by the appropriate federal agency. For costs related to a single SCIF, the credit is equal to the lesser of 50% of the costs or $200,000. For costs related to multiple SCIFs, the credit is the amount of costs up to $500,000 per calendar year.
The First Year Leasing Costs Tax Credit for Qualified Small Business
A qualified small business may also claim a credit against its Maryland income tax up to $200,000 for costs for rental payments during the first year of a rental agreement for leasing spaces to perform security-based contracting work.
The credits are capped at $2 million for each calendar year. If the amount of credits all businesses apply for exceeds the cap, each business receives its pro rata share. Businesses must submit an application to the Maryland Department of Commerce (Commerce) by September 15 for expenses incurred in the previous tax year.
For a business to be eligible, it must apply to and be certified by Commerce. The credit is available for eligible expenses for taxable years beginning after December 31, 2012, but before January 1, 2022.
To claim the ESCC tax credit; a business must submit an application to Commerce by September 15th following the tax year in which the related expenses and costs were incurred. A business claiming the First Year Leasing Costs Tax Credit for Qualified Small Business must submit a Small Business Affidavit with an application. By December 15th of that year, Commerce will certify the approved amount for which the applicant will be required to file an amended Maryland income tax return with the Comptroller of Maryland to claim the credit and attach a copy of the Commerce certification.
The total ESCC tax credit approved by Commerce may not exceed $2 million for any calendar year. If the total amount of credits applied for by all businesses exceeds $2 million, the credits will be approved on a pro-rata basis. Excess credit may be carried forward until the excess amount is fully used.
Tax Year 2019 applications must be sent to Commerce by September 15, 2020.
For more information about ESCC Tax Credit contact:
Lani Sinfield, Tax Specialist
Maryland Department of Commerce
Office of Finance Programs
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