The Maryland General Assembly recently closed its 2013 legislative session, during which it approved a new refundable tax credit for certain investments in Maryland cybersecurity companies similar to the plan proposed by Governor Martin O’Malley on January 16, 2013. The cybersecurity tax credit follows the very successful biotechnology investment incentive tax credit, which has been oversubscribed for the past several years. This alert briefly summarizes the eligibility requirements and the process for obtaining the tax credit.
The tax credit is available only to certain Maryland cybersecurity companies. To qualify, the cybersecurity company must meet the following criteria:
- Primarily develop cybersecurity technology;
- Have its headquarters and base of operations in Maryland;
- Have previously received this tax credit in no more than one year;
- Have been an active business for 5 years or less;
- Have at least $100,000 in equity;
- Have fewer than 50 full-time employees; and
- Not be publicly traded.
The investment must be at least $25,000, and the investor cannot own or control more than 25% of the equity interests in the company following the investment. The company and the investor must also be up to date on their federal, state and local tax obligations.
To receive the tax credit, the company must submit an application to the Department of Business and Economic Development (DBED) at least 30 days prior to receiving the investment. DBED will approve qualified applications on a first-come, first-served basis and issue an initial tax credit certificate within 30 days of receipt of an application. The company must then provide notice and proof of the investment to DBED within 10 days after the investment is made. The company will receive a refundable tax credit in an amount equal to 33% of the investment, capped at $250,000 in each instance and, in total, at 15% annually per company of the total statewide appropriations for the tax credit for the fiscal year.
The passage of the cybersecurity investment tax credit reinforces Maryland’s commitment to be the epicenter for cybersecurity.