A refundable tax credit is available for a minimum investment of $25,000 in a qualified Maryland Cybersecurity Company (QMCC). The credit is claimed by the QMCC. The QMCC may be allowed a tax credit of up to 33% of an eligible investment, up to $250,000. If the QMCC is located in Allegany, Dorchester, Garret, or Somerset County, there may be allowed a tax credit of up to 50% of the investment, up to $500,000.
The credit may be taken against corporate income tax or personal income tax.
The credit is available for tax years beginning after December 31, 2013, but before January 1, 2019.
To Qualify for the Credit:
A cybersecurity company must submit an application to the Maryland Department of Commerce (DOC) for the approval and certification at least 30 days prior to receiving an investment to be considered a QMCC.
Also a QMCC must:
- Have its headquarters and base of operations in Maryland;
- Have not participated in the tax credit program for more than 1 prior fiscal year;
- Have been in active business no longer than 5 years;
- Have an aggregate capitalization of at least $100,000;
- Own or have properly licensed any proprietary technology;
- Have fewer than 50 full-time employees
- Not have any securities publicly traded companion any exchange.
- Be in good standing;
- Be current in the payment of all tax obligations to Maryland or any unit or subdivision of Maryland;
- Not be in default under the terms of any contract with, indebtedness to, or grant from Maryland or any unit or subdivision of Maryland; and
- Meet any other requirements of the Department of Commerce (DOC) evidencing that the QMCC is a going concern primarily engaged in the development of innovative and proprietary cybersecurity technology.
A “qualified investor” is any individual or entity that invests at least $25,000 in a QMCC; is required to file an income tax return; and is not a qualified pension plan or an individual retirement account.
After making the investment, the qualified investor may not own or control more than 25% of the equity interests in the QMCC.
The investor must include in an application to DOC and information DOC may require, including evidence that the investor is:
- A company, duly organized and in good standing with the jurisdiction in which it is organized;
- Current in payment of tax obligations to a state or any agency or local government of a state; and
- Not in default under the terms of any contract with, indebtedness to, or grant from a state or local government or agency of a state.
The amount of the credit is 33% of the investment in the QMCC, not to exceed $250,000.
The amount of the credit is 50% of the investment in the QMCC, not to exceed $500,000, only if the QMCC is located in Allegany, Dorchester, Garrett or Somerset County.
The investment cannot include debt. The investment must be the contribution of money in cash or cash equivalents expressed in United States dollars, at risk of loss, to a QMCC in exchange for stock, a partnership or membership interest, or any other ownership interest in the equity of the QMCC, title to which the ownership interest shall vest in the qualified investor.
The QMCC must apply for and receive final certification from DOC to claim the Cybersecurity Investment Incentive Tax Credit.
DOC may not certify tax credits for investments in a single QMCC that are in the aggregate more than 15% of the total amount appropriated to the Maryland Cybersecurity Investment Tax Credit Reserve Fund (Reserve Fund) for that fiscal year. DOC may not issue initial credit certificates in excess of the amount appropriated to the Reserve Fund for that fiscal year in the State budget as approved by the General Assembly.
After an initial tax credit certificate is issued, a qualified investor has 30 calendar days to make an investment in a QMCC and, within the following10 days, the QMCC must provide to DOC notice and proof of the making the investment.
Based on the actual amount of the investment, DOC will issue a final tax credit certificate to the QMCC.
How the Credit is Calculated:
The credit allowed is 33% of an eligible investment contributed during the tax year, not to exceed $250,000, or 50% of an eligible investment not to exceed $500,000 if the QMCC is located in Allegany, Dorchester, Garrett, or Somerset County. The credit allowed may not exceed the amount shown in the final credit certificate issued by DOC. The amount in excess of the state tax liability may be refunded. The total amount of final tax credit certificates issued by DOC each year is limited to the amount appropriated to the Reserve Fund in the State budget. Applications are reviewed and approved on a first come, first served basis.
If the credit is claimed by a QMCC that is a Pass-through Entity(PTE), the members of the PTE may claim the distributive or pro rata shares of the credit amount subject to the $250,000 limitation. A PTE that earned the Cybersecurity Investment Incentive Tax Credit must electronically file the Maryland Form 510, Form 500CR and all other required attachments for members to be permitted to claim the credit. See Form 510 instructions.
For a member of the PTE to be allowed the credit, the member must complete the Form 500CR section of their electronically-filed Maryland return, entering the amount of their allocated share of the credit amount from their Maryland Schedule K-1(Form 510) directly onto Part Y and include a copy of the final certification from DOC and the Maryland Schedule K-1(Form 510).
The Maryland cybersecurity company must repay a prorated portion of the credit claimed if, within 2 years, it ceases to operate as an active business with its headquarters and base of operation in the State, it pays out as dividends or distributes the equity investment, or the investor sells, transfers or disposes of the ownership interest in the Maryland cybersecurity company.
See Part H of Form 500CR Instructions for detail of how the recapture is calculated.
This credit is available only with an electronically-filed return. A copy of the final certificate issued by DOC must be included with the electronic return, and the Form 500CR section of the return must be completed.
Maryland Department of Commerce
Office of Finance Programs, Tax Incentives Group
401 E. Pratt Street
Baltimore, MD 21202