Research and Development Tax Credit

Businesses that incur qualified research and development expenses in Maryland may be entitled to Maryland R&D tax credits. For a business to be eligible, it must apply to and be certified by the Maryland Department of Business and Economic Development (DBED).

Basic R&D Tax Credit
The Basic R&D tax credit is three percent of eligible R&D expenses that do not exceed the firm’s average R&D expenses over the last four years. However, if the total amount of credits claimed by all firms exceeds $3 million, the Basic R&D tax credit will be prorated.

Growth R&D Tax Credit
The Growth R&D tax credit is 10 percent of eligible R&D expenses that exceed the firm’s average R&D expenses over the last four years. However, if the total amount of credits claimed by all firms exceeds $3 million, then the Growth R&D tax credit will be prorated.

To qualify for the Basic R&D tax credit and the Growth R&D tax credit, a business must submit an application to DBED no later than September 15^th of the year following the tax year in which the expenses were incurred. DBED is required to certify the amount of basic and growth R&D tax credits by December 15 following the submission date. Eligible expenses for both the Basic R&D and the Growth R&D credits are restricted to "Maryland qualified research and development." This means qualified research, as defined in § 41 (d) of the Internal Revenue Code and regulations thereunder (the federal R&D tax credit), that is conducted in Maryland.

The application date for R&D tax credits follows the filing date for taxes. Therefore, a firm will submit its annual tax return as though there were no Maryland R&D tax credit. Then, after receiving the certification stating the amount of each credit, the firm may file an amended tax return. Prior to tax year 2005, the credits may be carried forward for 15 years. For all other tax years, the credits may be carried forward for seven years.

The Basic R&D tax credit and the Growth R&D tax credit remain in effect until January 1, 2011, subject to extension by the General Assembly.

Download an application form.

Applications for tax year 2007 must be submitted by September 15, 2008. For additional information on the R&D Tax Credit, download a copy of the Statute, Regulations and Frequently Asked Questions .