Maryland consistently ranks among the top
states in the nation in Entrepreneurship and Innovation. In
2016, Maryland tied for second at 5.7% among states where
overall research and development comprised the largest share of
gross state product.
A cluster of private companies also benefit from their proximity
to the federally funded entities and universities, some of which
spend billions of dollars on research and development.
Federal and Maryland State R&D tax credits are available to
help shoulder the costs related to R&D activities.
The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal
Research and Development (R&D) Tax Credit allows a credit
that typically ranges from 4%-7% of eligible spending for new
and improved products and processes. Qualified research must
meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayers business
- Must represent R&D in the experimental sense and
generally includes all such costs related to the development
or improvement of a product or process
- Must eliminate uncertainty through a process of
experimentation that considers one or more alternatives
Eligible costs include U.S. employee wages, cost of supplies
consumed in the R&D process, cost of pre-production testing,
U.S. contract research expenses, and certain costs associated
with developing a patent.
On December 18, 2015, President Obama signed the PATH Act,
making the R&D Tax Credit permanent. Beginning in 2016, the
R&D credit can be used to offset Alternative Minimum tax for
companies with revenue below $50MM and for the first time,
pre-profitable and pre-revenue startup businesses can obtain up
to $250,000 per year in payroll taxes and cash rebates.
Maryland R&D Tax Credit
The Maryland R&D Tax Credit awards a
refund of 10% of eligible R&D expenses in excess of the
firm’s average R&D expenses over the last four years.
The goal is to provide an incentive for businesses to increase
their R&D spending each year. However, expenses which
have not increased above the previous year’s average are still
eligible for a smaller refund of 3%.
To qualify the business must incur Qualified Research and
Development Expenses, as defined by § 41(b) of the Internal
Revenue Code in Maryland. The tax credit remains in effect until
June 30, 2022, subject to extension by the General Assembly.
Maryland is home to fourteen companies on the
prestigious Cybersecurity 500. The industry is booming as
crucial personal and business information move into an online
environment. Unlike other cybersecurity and tech hub
states like New York and California, Maryland has a much lower
overall cost of doing business. The demand for the capabilities
and services of the industry is strong because of proximity to
both large private industry and government agencies.
Maryland also does a great job of preparing their students to
succeed in the field. The state has the largest concentration of
university-trained cyber engineering graduates in the world. The
population has the largest concentration of STEM professionals
in the United States. This is fostered by the universities and
the 16 centers of academic excellence sponsored by the NSA and
the Department of Homeland Security.
However, it is not just the public sector and corporate
companies that fostering the development of the cybersecurity
industry of the state, Maryland is also home to more than 30
incubators which host cyber startups.