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Research and Development Tax Credit (R&D)

Businesses that have qualified R&D expenditures in Maryland may qualify for the R&D Tax Credit.
The tax credit remains in effect until June 30, 2027, subject to extension by the General Assembly.

BENEFIT

The tax credit is equal to ten percent (10%) of eligible R&D expenses incurred during the taxable year in excess of the Maryland Base Amount. If the total credits applied for exceed the statutory caps, the business's R&D tax credit is prorated. The total statutory cap is $12 million with a small business set-aside of $3.5 million.  A single applicant may not receive a tax credit exceeding $250,000.  

ELIGIBILITY

The Maryland Department of Commerce (Commerce) 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 Commerce by November 15th for expenses incurred in the previous calendar 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. 

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. 


APPLY

  • To qualify for the 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 Maryland Qualified Research and Development 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 for which Maryland Qualified Research and Development, as reported on the balance sheet, of less than $5 million.
  • Commerce will prorate if the credits applied for by non-small businesses exceeds $8.5 million and/or if the total amount of credits applied for by small businesses exceeds $3.5 million.
  • Commerce will issue a tax credit certificate with the approved credit amount by February 15th of the calendar year following the end of the year in which a business submits an application. 
  • 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.

Applicants must apply through Commerce's online system. Please click on the Apply Online button below.​

 Apply Online

RESOURCES

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​CONTACT

For more information about the R&D Tax Credit contact:

Kelly Adams, Tax Specialist 
Maryland Department of Commerce, Office of Finance Programs 
410-767-6438

Lani Sinfield, Program Manager 
Maryland Department of Commerce, Office of Finance Programs 
410-767-4041

FREQUENTLY ASKED QUESTIONS

  • What is the Research and Development Tax Credit Program?
    • ​Maryland’s Research and Development Tax Credit program provides income tax credits to businesses that invest in research and development in Maryland. The total amount of credits depends on the amount of eligible expenses incurred with a limit of $12 million for all businesses that apply.​

  • How much credit does a business receive?
    • The business will receive 10% of Maryland qualified R&D expenses incurred during the taxable year that exceeds the Maryland base amount, subject to statutory limits on the amount of credits.

  • How do I know if I can claim the R&D Tax Credits?
      1. Firm Certification Requirement: A firm must submit an application to the Maryland Department of Commerce by November 15th of the year following the taxable year in which the Maryland qualified research and development expenses were incurred. Commerce will certify to the taxpayer the amount of the R&D tax credit that the taxpayer may claim by February 15th.
      2. The firm may only claim a credit for qualified research expenses (as defined in 41(b) of the Internal Revenue Code) incurred for Maryland qualified research and development. Maryland qualified research and development is qualified research and development as defined in § 41(d) of the Internal Revenue Code that is conducted in Maryland - expenses eligible for the federal R&D credit.


  • How do I calculate the credit amount?
      1. Determine the business’s Maryland gross receipts for the tax year for which you are claiming the credit and the preceding four years or for those years that the business had gross receipts.
      2. Compute the average gross receipts based on the number of years the business was in existence. If the business is a partial or short year taxpayer, multiply the average by the portion of the year for which the business entity is claiming the credit.
      3. Determine the business’s Maryland qualified research and development expenses for the tax year for which you are claiming credit and the preceding four years, if any.
      4. Compute the average of the expenses for these years based on the number of years the business was in existence. If the business is a partial or short year taxpayer, multiply the average by the portion of the year for which the business entity is claiming the credit.
      5. Calculate the base percentage by dividing the average (or adjusted average) Maryland qualified research and development expenses by the average (or adjusted average) Maryland gross receipts for the applicable years.
      6. Calculate the Maryland base amount by multiplying the base percentage by the average Maryland gross receipts. If the business entity is a partial year or short year taxpayer determine the Maryland adjusted base amount by multiplying the base percentage by the adjusted average Maryland gross receipts.
      7. Compute the R&D tax credit by subtracting the Maryland Base Amount from the Maryland qualified R&D expenses and taking 10% of this amount. 


  • What if my firm did not invest in research and development before the tax year in which I am claiming the credit?
    • If the first year in which your firm incurred R&D expenses is the year you are claiming the tax credit then the Maryland Base Amount would be equal to zero and you would qualify for the R&D credit, which would be 10% of your expenses incurred in the tax year.


  • What if I do not have enough tax liability to use all of the credit?
    • If the tax credit exceeds the tax imposed for that year, the credit may be applied against following years’ taxes until the credit is used or the credit may be carried forward for 7 years.

  • How do I claim the R&D Tax Credit?
    • The business may file an amended tax credit return for the year in which the expenses were incurred and attach a copy of the certification from the Maryland Department of Commerce or it may claim the credit on an income tax return filed for any of the following 7 tax years.

  • What is the Maryland Adjusted Base Amount?
    • If you are a partial or short year taxpayer, R&D tax credit will be calculated using the Maryland Adjusted Base Amount. The Maryland Adjusted Base Amount is the Maryland Base Amount multiplied by the following fraction: the number of days in the calendar year that are in the firm’s partial or short tax year divided by 365 days. For example, if your tax year were from January 1, 2001 to June 30, 2001, the Maryland adjusted base amount would be the Maryland base amount multiplied by 181/365 or 50%.

  • What if the total R&D credits applied for exceeds the statutory caps?
    • If applications by small businesses for the R&D Tax credit exceed $3.5 million, the credit amount for each small business applicant will be calculated by multiplying the credit applied for by the following fraction: $3.5 million divided by the total credits applied for by all small business applicants. If the total amount of credits applied for by small business is less than $3.5 million, the total credit amount available to applicants that are not small businesses will be increased by the difference between $3.5 million and the total amount credits applied for by small businesses.

      If applications for the R&D Tax credit by applicants that are NOT small businesses exceed $8.5 million, the credit amount for an applicant that is NOT a small business will be calculated by multiplying the credit applied or by the following fraction: $8.5 million divided by the total credits applied for by all applicants that are not small businesses. If the total amount of credits applied for by non-small business is less than $8.5 million, the total credit amount available to small business applicants will be increased by the difference between $8.5 million and the total amount credits applied for by applicants that are not small businesses.

      However, no applicant will be approved for a tax credit in an amount exceeding $250,000.

      For example, if you are not considered a small business and the credit amount that you are applying for is $500,000 and the total amount of credits applied for by non-small businesses is $15 million, you will be eligible for $250,000, as the prorated credit amount of $283,333 exceeds the maximum credit allowed for any single applicant.


  • My corporation has several subsidiaries in Maryland conducting Research and Development. How do I determine the amount of credits allowable to each entity?
    • Only the parent company will apply for the R&D credit. Each subsidiary will be allocated a fraction of the total credit for use against its Maryland tax liability. The fraction is the Maryland qualified R&D expenses incurred by the separate entity divided by the total Maryland qualified R&D expenses incurred by all affiliated corporations and entities under common control.

  • What if R&D expenses increase because of a merger, acquisition or reorganization?
    • When determining the Maryland Base Amount or Maryland Adjusted Base Amount, the Maryland qualified research and development expenses from the acquired, consolidated, merged or restructured entity must be included. For example, if Company A buys Company B, it can count Company B’s Maryland qualified R&D expenses in the taxable year, but it must also count Company B’s R&D expenses in previous years when determining the base amount.

  • If I purchase a firm that has claimed R&D credits, do the credits carry over?
    • 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.

  • Is the credit refundable for small businesses?
    • ​R&D tax credits certified after December 15, 2012 are refundable for a "small business" to the extent that the tax credit exceeds 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. 

  • How are “net book value assets” defined for the purpose of the small business designation?
    • “Net book value assets” means the total of a business’s net value of assets, including intangibles but not including liabilities, minus depreciation and amortization.