On April 11, 2017, Governor Larry Hogan signed the bill known as the More Jobs for Marylanders Act of 2017 (the “Act”), designed to create jobs in Maryland by providing tax incentives for manufacturing companies. The tax incentives are in the form of (i) income tax credits, (ii) sales tax refunds, (iii) real property tax credits, and (iv) enhanced depreciation deductions.
The applicability of the various tax credits depend upon (i) whether the manufacturing company is already existing in the State, or whether it is a new manufacturing company, and (ii) the county (including Baltimore City) in which the manufacturing company is located. The Act divides the counties into two tiers: Tier I counties are certain economically-distressed counties, and Tier II counties are all other counties.
Income Tax Credit
The Act allows certain manufacturing companies to claim a credit against State income tax in an amount equal to the product of (i) 5.75%, times (ii) the total amount of wages paid to each employee for a newly-created qualifying position. With respect to a new manufacturing company, the income tax credit applies only to manufacturing facilities to be located in a Tier I county, while the income tax credit applies to existing manufacturing companies for its manufacturing facilities located anywhere in the State.
To be eligible for the income tax credit, a manufacturing company must create at least five (5) full-time positions that pay at least one hundred twenty percent (120%) of the State minimum wage with respect to a manufacturing facility in a Tier I county, while the minimum number of such newly-created positions for a facility in a Tier II county is ten (10). In addition, the manufacturing company must offer an ongoing job skills enhancement training program or postsecondary education program. The income tax credit is refundable, meaning that if the credit exceeds the total income tax liability of the manufacturing company, the company may claim a refund for the excess.
Sales Tax Refund
The Act allows certain new manufacturing companies to claim a refund for the amount of sales and use tax paid during the preceding year with respect to personal property or services purchased for use at the manufacturing facility on or after January 1, 2018.
To be eligible for the sales tax refund, a new manufacturing company must create at least five (5) full-time positions that pay at least one hundred twenty percent (120%) of the State minimum wage for a Tier I county, while the minimum number of such newly-created positions in a Tier II county is ten (10).
Real Property Tax Credit
The Act allows certain new manufacturing companies to claim a credit against State real property tax in an amount equal to one hundred percent (100%) of the State property tax imposed on the real property owned by the manufacturing company. The Act makes clear that the real property tax credit applies only to State real property taxes, and does not affect any county or local taxes imposed on real property.
The real property tax credit applies only to new manufacturing companies operating in a Tier I county that create at least five (5) full-time positions that pay at least one hundred twenty percent (120%) of the State minimum wage.
Enhanced Depreciation Deductions
Current Maryland income tax law is decoupled from federal income tax with respect to certain aspects of depreciation. Thus, the calculation of Maryland taxable income is currently determined without regard to (i) “bonus” depreciation under Internal Revenue Code Section (“Code”) 168(k), and (ii) any changes made to Code Section 179 after December 31, 2002 regarding the expensing of property expenditures.
The Act eliminates the decoupling for manufacturing companies with respect to property placed in service on or after January 1, 2019. Thus, in determining its Maryland taxable income with respect to property placed in service in 2019, a Maryland manufacturing business will be entitled to claim (i) bonus depreciation of 30% under Code Section 168(k), and (ii) an expense under Code Section 179 based upon the applicable amount for 2019 (the maximum Code Section 179 expense for 2017 is $510,000, which will be adjusted for inflation for future years).
Registration with the Department
To qualify for certain of the tax benefits discussed above, a new manufacturing company must notify the Maryland Department of Commerce (the “Department”) prior to establishing its manufacturing facility in the State, and an existing manufacturing company must notify the Department prior to hiring any qualified employees at the facility. The discussion above is only a brief summary of the Act and there other requirements contained in the Act before a manufacturing company can benefit from the Act’s tax incentives.
If you have any questions regarding the application of the Act’s tax benefits to your manufacturing company, or need assistance in registering your company with the Department, please contact Douglas T. Coats at email@example.com or 410-576-4002.