Maryland Business Taxes: Everything You Need to Know
Maryland business taxes are required by the state for any companies that are operating a business.3 min read
2. Maryland Business Tax Credits and Incentives
Maryland business taxes are required by the state for any companies that are operating a business. Most states have a requirement for corporations to pay corporate income tax, while other entities such as limited liability companies, S corporations, sole proprietorships, and partnerships are subject to the state's tax on their personal income.
Maryland State Business Income Tax
Corporate rates are usually flat no matter what the income amount is and often range from four percent to nine percent. Personal rates can vary from zero percent to nine percent and depend on the income amount. There are currently four states that don't have a corporate income tax, including:
- South Dakota
These states, in addition to Florida, Alaska, and Texas, don't have a personal income tax either. Those who live in Tennessee and New Hampshire get taxed only on dividend and interest income. Besides taxing the income of a business through a personal income tax or corporate income tax, some states also have a separate tax on businesses, called a privilege tax or franchise tax.
The specifics for a state's franchise tax are dependent on the business's legal form. Franchise taxes tend to be based on the net worth of the business or are a flat fee. There's a corporate income tax in Maryland, but no privilege or franchise tax that applies to businesses. A flat rate of 8.25 percent applies to the net income of Maryland's corporate income tax. Pass-through entities for non-resident members get taxed on the pro-rata shares for the income of an entity.
S corporations are formed by creating a traditional corporation and then filing a certain form with the IRS to choose S corporation status. Different from a regular corporation, S corporations aren't subject to federal income tax that's separate. Taxable income gets passed through to each shareholder, who will then pay federal tax on their portion of the income on their personal tax return. Maryland is different from other states because it's mandatory for S corporations to pay income tax to non-resident shareholders.
Maryland Business Tax Credits and Incentives
Every association and corporation who has income in Maryland is required to file their income tax return on Form 500. This must be filed online in order to claim income tax credits or deductions. It's required for Maryland businesses to pay a yearly tax based on what the value is of their business personal property. This includes fixtures, machinery, furniture, tools, and equipment. The Department of Assessments and Taxation for the state is in charge of the valuation process. That said, individual towns and counties are in charge of collecting tax for the property's location.
The DAT is in charge of registering limited liability companies, limited liability partnerships, corporations, and limited partnerships when these entities form. Other businesses, such as general partnerships or sole proprietorships, that lease or own personal property or need a business license, are required to file a yearly business personal property return with the state of Maryland. They also need to register with the DAT and get an identification number.
Three business tax credits are offered, which include the Apprentice Employee Tax Credit, the Qualified Farms Tax Credit, and the Qualified Veteran Employees Tax Credit. The Apprentice Employee Tax Credit is where some taxpayers are eligible for income tax credit in their first year of employing apprentices. This credit is based on how many apprentices are employed that are eligible.
The Qualified Farms Tax Credit is where a farm that's qualified and makes a food donation that's eligible can apply for a tax credit that's equal to half of the value of a food donation. This also applies to farms that make a certified organic produce donation, as they may be eligible for a tax credit up to 75 percent of the cost of the donated produce.
The Qualified Veteran Employees Tax Credit can be claimed by smaller businesses when qualified veteran employees are hired. They can get up to 30 percent credit for each employee up to a maximum of the first $6,000 of wages that get paid to the qualified veteran during their first year being employed.
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