Refundable Credit for Investors in Cybersecurity (Part H-1 of Form 500CR)
A credit is available for an investment in a qualified Maryland cybersecurity company (QMCC). The credit is claimed by a qualified investor. A qualified investor is an individual or entity that invests at least $25,000 in a QMCC that is required to file an income tax return in any jurisdiction. To qualify, a QMCC can be an entity of any form (except a sole proprietorship) that is duly organized and existing under the laws of any jurisdiction (or formed within 4 months of receiving the investment) for the purpose of conducting business for profit, and must be engaged primarily in the development of innovative and proprietary cybersecurity technology.
The 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 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 on 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;
- Meet any other requirements of the Maryland Department of Commerce evidencing that the QMCC is a going concern primarily engaged in the development of innovative and proprietary cybersecurity technology; and
- Provide any other information the Maryland Department of Commerce may require.
The amount of the credit is 33% of the investment in the QMCC, not to exceed $250,000. For a QMCC located in Allegany County, Dorchester County, Garrett County, or Somerset County, the amount of the credit is 50% of the investment in the QMCC, not to exceed $500,000. The investment cannot include debt unless it is convertible 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. “Qualified investor” means an individual or entity that is required to file an income tax return in any jurisdiction and invests at least $25,000 in a QMCC. However, the qualified investor may not, after making the investment, own or control more than 25% of the equity interest in the QMCC. See § 10-733 of the Tax-General Article.
At least 30 days prior to making an investment in a QMCC, a qualified investor must submit an application to the Maryland Department of Commerce for an initial tax credit certificate.
At least 30 days prior to receiving an investment the QMCC must submit an application to the Maryland Department of Commerce to evidence that the QMCC has satisfied the minimum requirements for consideration as a QMCC.
For questions on application and certification processes or for additional information on this credit program, contact:
Maryland Department of Commerce
Office of Finance Programs, Tax Incentives Group
401 E. Pratt St.
Baltimore, MD 21202
Based on the actual amount of the investment made by a qualified investor, the Maryland Department of Commerce will issue a final tax credit certificate to the qualified investor. The qualified investor may claim the tax credit for the amount provided in the final certificate. If the credit exceeds the tax due, then a refund for the excess amount may be claimed. The credit cannot be claimed until the date of issuance of the final certificate. It must be claimed on the Maryland income tax return for the tax year in which the investment is made in the QMCC.
A copy of the final certificate received from the Maryland Department of Commerce is required to be included with your return for the tax credit to be allowed. Complete Part H-I using the information provided in the final certificate and enter the amount of the approved investment on line 1.
On line 2, Part H-I, enter 33% of the approved investment. For a QMCC located in Allegany County, Dorchester County, Garrett County or Somerset County, enter 50% of the approved investment.
Line 3, Part H-I, reflects the maximum dollar amount of credit per investment. Enter $250,000. For a QMCC located in Allegany County, Dorchester County, Garrett County or Somerset County, enter $500,000.
On line 4, Part H-I, enter the lesser of line 2 or line 3.
On line 5, Part H-I, enter any applicable recapture amount. See more information below about recapture amounts.
On line 6, Part H-I, subtract line 5 from line 4. If the amount is less than zero, enter a negative amount.
Enter the amount from line 6, Part H-I, on line 7, Part CCC.
Note: If you are claiming a credit for more than one investment, another separate Part H-I must be completed for each investment.
Total the amounts from line 6 from each separate Part H-I. Using only one summary section, combine the total on line 7, Part CCC. To claim the total credit, you must complete a second Part H-I at the time you electronically file your income tax return.
Recapture of Credit
The credit is subject to recapture if within 2 years of the close of the taxable year in which the credit is claimed; 1) the qualified investor sells, transfers or otherwise disposes of the ownership interest in the QMCC that gave rise to the credit; 2) the QMCC ceases operating as an active business or distributes the equity investment; 3) the QMCC is not duly organized and existing within 4 months of receiving the qualified investment. The applicable recapture amount is calculated by multiplying the total amount of the credit claimed (or in the case of a sale, transfer, or other disposition of the ownership interest, the portion of the credit attributable to the ownership interest disposed of), by one of the following percentages:
100%, if the event requiring recapture of the credit occurs during the tax year for which the tax credit is claimed;
67%, if the event requiring recapture of the credit occurs during the first year after the close of the tax year for which the tax credit is claimed; or
33%, if the event requiring recapture of the credit occurs more than 1 year but not more than 2 years after the close of the tax year for which the tax credit is claimed. The amount of recapture is entered onto line 5, Part H-I.
The credit may also be subject to a recapture if the certificate is rescinded by the Maryland Department of Commerce due to the qualified investor failing to provide the required notice to the Maryland Department of Commerce of having made the investment, or if the Maryland Department of Commerce revokes the final certification due to false representations made in connection with the application for the certification.
If the credit is claimed by a qualified investor that is a PTE, the members of the PTE may claim the distributive or pro rata shares of the credit amount subject to the $250,000 limitation (or $500,000 for a QMCC located in Allegany County, Dorchester County, Garrett County or Somerset County). A PTE that earned the Cybersecurity 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 and include a copy of the final certification from the Maryland Department of Commerce and Maryland Schedule K-1 (510) showing the allocated share of the credit amount.
Nonrefundable Credit for Buyers of Cybersecurity Technology and/or Cybersecurity Services (Part H-II of Form 500CR)
A qualified buyer may claim a credit in an amount equal to 50% of the cost incurred during the taxable year to purchase cybersecurity technology and/or cybersecurity services from one or more qualified sellers. For any taxable year, the credit allowed may not exceed $50,000 for each qualified buyer, and the aggregate credits claimed for cybersecurity technology and/or cybersecurity services purchased from a single qualified seller may not exceed $200,000.
A "Qualified Buyer" means any entity that has fewer than 50 employees in the State and that is required to file an income tax return in the State.
A qualified buyer eligible for the credit may apply to the Maryland Department of Commerce for a credit certificate that states the amount of the credit the qualified buyer may claim. A qualified buyer must attach a copy of the credit certificate to the income tax return on which the qualified buyer claims the credit. The Maryland Department of Commerce approves each application that qualifies for a credit certificate.
A "Qualified Seller" means a cybersecurity business that:
- Has its headquarters and base of operations in the State;
- (i) Has less than $5,000,000 in annual revenue; (ii) Is a minority-owned, woman-owned, veteran-owned, or service-disabled-veteran-owned business; or (iii) Is located in a historically underutilized business zone designated by the United States Small Business Administration;
- Owns or has properly licensed any proprietary cybersecurity technology; or provides cybersecurity service;
- Is in good standing;
- Is current in the payment of all tax obligations to the State or any unit or subdivision of the State; and
- Is not in default under the terms of any contract with, indebtedness to, or grant from the State or any unit or subdivision of the State.
A "Cybersecurity Business" means an entity organized for profit that is engaged primarily in the development of innovative and proprietary cybersecurity technology or the provision of cybersecurity service.
A "cybersecurity service" is an activity that is associated with a category or subcategory identified under the framework core established by the National Institute of Standards and Technology’s Cybersecurity Framework.
"Cybersecurity technology" means products or goods intended to detect or prevent activity intended to result in unauthorized access to, exfiltration of, manipulation of, or impairment to the integrity, confidentiality, or availability of an information system or information stored on or transiting an information system.
Subject to Recapture
The Maryland Department of Commerce may revoke its certification of a credit if any representation made in connection with the application for the certification is determined by the Maryland Department of Commerce to have been false. The revocation may be in full or in part as the Maryland Department of Commerce may determine.
For information on the qualifications and application process, contact:
Maryland Department of Commerce
Office of Finance Programs
401 E. Pratt Street, 17th Floor
Baltimore, MD 21202