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Frequently Asked Questions - ChooseMaryland

By Edith Cruz,2014-07-09 13:09
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Frequently Asked Questions - ChooseMaryland ...

    ONE MARYLAND

    Tax Credit Program

The One Maryland Tax Credit Program provides two income tax credits to businesses that initiate major

    investment projects in Maryland’s most economically distressed jurisdictions. The One Maryland Project Tax

    Credit can be as much as $5 million and the ONE MARYLAND Start-Up Tax Credit can be as much as

    $500,000.

The start-up tax credit is for the expense of moving a business from outside Maryland and for the costs of

    furnishing and equipping a new location for ordinary business functions. Examples of eligible start-up costs

    would include the cost of fixed telecommunications equipment, office equipment, or office furnishings.

    Eligible start-up costs may not exceed $500,000.

The project tax credit is for the cost of acquiring, constructing, rehabilitating, installing, and equipping an

    economic development project. Eligible costs include land acquisition, performance and contract bonds and

    insurance, architectural and engineering services, environmental mitigation, utility installation, interest costs

    prior to and during acquisition and construction and for two years after completion of the project, and legal

    and accounting fees. Eligible project costs must be at least $500,000; project costs in excess of $5 million

    are not eligible for the project tax credit.

Finally, it is possible for a project to receive both the $500,000 start-up credit and the $5 million project credit.

    Of course, expenses claimed for one credit may not be claimed for the other.

The start-up credit earned may not exceed the lesser of $500,000 of eligible start-up costs or $10,000 times

    the number of new, qualified position created. If a business creates 50 qualified positions and has $500,000

    of eligible start-up expenditures, then it may claim the full credit of $500,000. This credit may be taken

    against the business entity’s Maryland tax liability.

The project credit earned may not exceed $5 million. This credit is taken only against the project’s Maryland

    tax liability during the first five taxable years. Subject to certain limitations, beginning in the sixth year the

    credit may be taken against the business entity’s Maryland tax liability.

Also, beginning in the sixth year, both credits become refundable, subject to certain limitations.

In order to claim the One Maryland Tax Credit, a business must meet all of the following requirements:

    1. Declaration of Intent Requirement. A business may not claim any project or start-up expense that is

    incurred or count any employee hired prior to notifying the Department of Business and Economic

    Development (DBED) in writing of its intent to seek certification for a One Maryland Tax Credit.

    2. Business Certification Requirement. A business must be certified as a qualified business entity eligible

    for the One Maryland Tax Credit. Applications for certification are available from DBED.

    3. Job Creation Minimums. The business must create at least 25 new, full-time qualified positions at the

    project within 24 months of the date the project is placed in service.

    4. Location: A business must locate or expand in a “Priority Funding Area” in a “Qualified Distressed

    County”. Qualified Distressed Counties include: Baltimore City, Allegany, Garrett, Caroline,

    Dorchester, Somerset and Worcester Counties. This is subject to change. Please verify with DBED.

    5. Other General Requirements:

    a) The project must be primarily engaged in an eligible activity as defined by the statute.

    b) Only new jobs that pay more than 150% of the federal minimum wage are counted toward the credit.

    c) A job must be filled for 12 months before it is a “qualified position” for the tax credit.

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A business may not claim any project or start-up expense that is incurred or count any employee hired prior

    to notifying the DBED of its intent to seek certification for a ONE MARYLAND Tax Credit.

To qualify for the One Maryland tax credits, a business must be certified by DBED as a qualified business

    entity eligible for the tax credits. The process includes the following steps:

    ? The business must notify DBED in writing of its intent to qualify for the One Maryland tax credits prior to

    incurring eligible costs and creating qualified positions.

    ? The business SHOULD submit a preliminary application to DBED. If, based on the information in the

    application, it appears the business will meet the minimum requirements of the One Maryland statute;

    the Department will issue the business a Preliminary Certificate of Eligibility.

    ? The business has 12 months from its intent date to start the project. Once the project is started, it has 3

    years to complete the project and have it “placed in service”. Once the project is “placed in service”, the

    business has 24 months to create at least 25 qualified jobs.

    ? Once the business meets the minimum requirements of the statute (including creating 25 qualified jobs

    and having them FILLED for 12 months), the business must submit a final application to DBED. If the

    business qualifies, DBED will issue a Final Certificate of Eligibility. A copy of the Final Certificate of

    Eligibility must be attached to the business’s tax return (Form 500CR) when it claims the credit. .

The statute limits eligibility to specific industries. These are:

    ? Manufacturing or Mining ? Transportation or Communications ? Agriculture, Forestry, or Fishing ? Public Utility ? Research, Development, or Testing ? Biotechnology ? Business Services ? Warehousing ? Film making, Resort and Recreation

    ? Computer Programming, Data Processing or other Computer Related Services

    ? Central Financial, Real Estate or Insurance Services

    ? Operation of Central Administrative Offices or a Company HQ

To qualify for the credits, the project must be in a qualified distressed county and in a priority funding area.

    Maryland legislation defines priority funding areas as: State enterprise zones; federal empowerment zones;

    Department of Housing and Community Development designated neighborhoods; incorporated municipalities;

    the areas between the I-495 beltway and Washington D.C. and the I-695 beltway and Baltimore City; and

    growth areas designated by each county.

A full-time position requires at least 840 hours of an employee’s time during at least 24 weeks in a 6-month

    period. This is an average workweek of 35 hours per week.

The purpose of this tax credit is to encourage construction of new business facilities in distressed counties,

    as well as to generate new, permanent, full-time jobs for Maryland workers. If a business must reduce its

    workforce after qualifying for the credit, it does not lose the credit. However, if it reduces its workforce below

    the 25 job minimum, it may not claim the credit that tax year.

A job is not eligible for the One Maryland Tax Credit if it is created through a change in ownership of a trade

    or business, through a consolidation, merger, or restructuring of a business entity; or when an employment

     July 2008 page 2

function is contractually shifted from an existing business entity in the state to another business entity. An

    eligible position must constitute a net new job for the state. However, as long as a project creates 25 eligible

    positions, the project itself may well be the consequence of a merger or restructuring of the entity.

The statute allows the company to establish a separate accounting method reflecting only gross income,

    deductions, expenses, gains, and losses that are directly attributable to the facility or the expansion of a

    facility. Alternatively, if such a separate accounting method is not practical, the business may use an

    alternative method approved by the taxing authority.

The One Maryland Statute contains carry-forward and refund provisions designed to allow your business to

    make use of its tax credits. The credits can be claimed as follows:

    ? The credits can be carried forward for 15 years from the date the project is placed in service.

    ? If the full start-up tax credit has not been taken against the business' state tax during the first six

    years of the project, the business may also claim a refund, up to the state income tax withholding

    amount of the qualified employees.

    ? 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 six years of the project, the business may take the credit against state

    tax for other income and claim a refund, up to the state income tax withholding amount of the

    qualified employees.

    ? The credit is accelerated for businesses that pay higher wages. If the majority of the qualified

    positions created are paid 250 percent or more of the federal minimum wage and the first notice of

    intent to seek certification is filed with DBED on or after July 1, 2002, the excess credit may be

    used against the tax on non-project income or refunded two years earlier than normally permitted.

An insurer may claim the start-up credit against the State insurance premium tax as soon as it qualifies for ththe credits. In addition, beginning in the sixth year of the project and continuing through the 15 year, the

    insurer may claim a refund of excess credit not yet taken, but the amount of the refund claimed may not

    exceed the State income tax withholding amount for its qualified employees at the project for that year

An insurer may not claim the project credit against the State insurance premium tax for the first five years of ththe project. Beginning in the sixth year of the project and continuing through the 15 year, the insurer may

    claim the project credit against the premium tax and, to the extent that there is excess credit, a refund, but

    the combined amount of the credit taken and the refund claimed may not exceed the State income tax

    withholding for its qualified employees at the project for that year.

A nonprofit corporation may claim both the start-up credit and the project credit against its State income tax

    obligations. Beginning in the sixth year of the project, a nonprofit corporation may claim an income tax

    refund based on the state income tax withholding of its qualified employees. It may claim this refund for the

    start-up tax credit and again for the project tax credit. It may continue to do this until the tax credit is used, or

    through the fifteenth year of the project, at which time the carry-forward provision expires.

     July 2008 page 3

The tax credit statute defines a qualified position as full-time and paying 150% of the federal minimum wage.

    Therefore, if the federal minimum wage increases, the wage required for a position to continue to be qualified

    also increases. For the One Maryland project or start-up tax credit, a position must continue to be qualified

    until the entire tax credit has been used.

    The business may be able to count some or all of the lease costs. To determine whether the lease costs

    qualify as an eligible project cost, the lease must be reviewed and approved by DBED.

The purpose of the One Maryland Tax Credit program is to encourage new capital investment. However, in

    some cases the purchase of an existing building may be allowed as an eligible project cost if the Secretary

    determines that the acquisition of the existing building is being made in connection with a project to reuse a

    vacant or underused facility. If you plan to purchase an existing building and count the cost as an eligible

    project cost, please notify the Department before committing to the project.

If you are moving your business from one location in Maryland into a One Maryland County, the regulations

    state that the Secretary will decide whether or not to approve the tax credit for the business based on the

    following: 1) whether approving the tax credit would have a significant deleterious effect on another State

    location, by inducing a business to move a substantial number of jobs from an existing State location to a

    project in a qualified distressed county; 2) granting the tax credit would create a vacant Maryland facility,

    unless the Secretary determines that the vacant facility will not have a significant deleterious effect on the

    area. This is considered on a case-by-case basis.

Yes, for example, a business may also qualify for the Job Creation Tax Credit and if it is located in an

    enterprise zone, the enterprise zone income tax credits.

    Maryland Tax Form 500CR is used to claim this credit. Simply fill it out and include it, along with a copy of

    your Final Certificate of Eligibility, in your state tax return. Also, note that the credit is taken against the state

    corporate income tax, personal income tax or insurance premiums tax.

The business, in accordance with standard tax records procedures, must maintain information on the costs

    claimed for the credit, employment records to show that the required number of qualified positions were

    created and maintained, and withholding information for qualified employees if a credit refund is being

    claimed.

Confidential commercial and financial information is protected by the Public Information Act. In the tax credit

    application, businesses consent to release of their names and the number of jobs created.

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