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Basic Business Taxes

Job creation tax credits:
New or expanding firms in the state may be eligible for income tax credits for the creation of at least 60 new qualifying jobs over a two-year period. If specific payroll levels are met, credits may be available to companies creating 30–59 new positions. The job-creation threshold is 25 for tax credits to businesses locating or expanding in designated state priority-funding areas.

Enterprise zones:
Businesses located in state-designated enterprise zones may be eligible for state income tax credits for wages paid to new employees in the zone.

Research-and-development tax credits:
A 3 percent tax credit for R&D expenses and a 10 percent credit for increases in R&D expenses are available for R&D activities in Maryland. These credits, which use federal definitions of R&D, are subject to limits of $3 million each. If total applications exceed the limits, then the amount is prorated.

One Maryland tax credits:
Qualified businesses locating or expanding in economically distressed jurisdictions may claim income tax credit of up to $500,000 for certain eligible start-up costs and up to $5 million for eligible project costs.

Biotechnology Investment Tax Credit Program:
50 percent of an eligible investment made in a qualified Maryland biotechnology company during the taxable year; for qualified individuals, corporations, and venture capital companies.

Real property tax:
Property taxes are imposed by the state, counties, and municipalities on real property. Property is taxed on an assessed value, and assessed at 100 percent of market value. Rates vary by locality.

Enterprise zones:
Businesses locating in the state's enterprise zones receive property tax credits on improvements to real property. These credits are increased in focus area portions of enterprise zones.

Brownfields:
Counties may grant tax credits for cleanup and improvement of qualified brownfield sites. Certain jurisdictions may grant redevelopment/revitalization tax credits to qualified businesses.

Business personal property tax:
The personal property of businesses is taxed on depreciated value, and may be exempt in certain counties and municipalities. The state does not impose a personal property tax on business.

Business inventory:
All counties and the city of Baltimore exempt manufacturing inventories from property taxation. Most counties exempt commercial inventories.

Manufacturing machinery and equipment:
Machinery, equipment, material, and supplies used in manufacturing are exempt in most counties and many municipalities.

Research and development:
Machinery, equipment, materials, and supplies used primarily in research and development are treated as manufacturing equipment for tax purposes and are exempt in the same jurisdictions.

Computer software:
Customized computer software is exempt. Local jurisdictions may grant a tax credit for "off the shelf" software.

Enterprise zone focus areas:
In designated focus areas, an 80 percent credit is given on new investment of business personal property.

Sales and use taxes:
A 5 percent tax is levied on the sale or use of personal property within the state, including the rental or leasing of such property. Local jurisdictions do not impose a sales tax.

The following are major business-oriented exemptions from the Maryland sales and use tax:
• • Sales of capital manufacturing machinery and equipment, including equipment used for testing finished products; assembling, processing, or refining; in the generation of electricity; or used to produce or repair production equipment.
• • Sales of noncapitalized manufacturing machinery and equipment; safety and quality-control equipment used on a production activity site; and equipment used to move a finished product on the production site (including inventory control systems and related software).
• • Sales of tangible personal property consumed directly in manufacturing, testing of finished products, assembling, processing, or refining, or in the generation of electricity.
• • Sales of fuels used in manufacturing, except those used to heat and light the manufacturing facility. All fuels through a particular meter are exempt if more than half are used directly in manufacturing.
• • Sales of customized computer software
• • Sales of equipment and material used or consumed in research and development, to include testing of finished products
• • Sales of aircraft, vessels, railroad rolling stock, and motor vehicles that will be used principally in the movement of passengers or freight in interstate and foreign commerce. This includes sales of replacement parts and other tangible personal property to be used physically in, on, or by these vehicles.
• • Sales of certain end-item testing equipment used to perform a contract for the U.S. Department of Defense and transferred to the federal government.