Between supply chain hurdles, labor shortages and the pandemic, it’s hard to turn a profit. That’s why it’s more important than ever to take advantage of every tax saving opportunity available to your business. Let’s look at some key tax credits for manufacturers and distributors.
The Maryland Enterprise Zone Tax Credit program provides state income and real property tax credits for businesses located in a Maryland enterprise zone in return for job creation and investments. Businesses located in focus areas may also be qualified for personal property tax credits on new investment in personal property and enhanced income tax credit for creating new jobs.
There are 36 enterprise zones and three designated focus areas in Maryland. You can search the address of your business to see if it is located within an enterprise zone.
This is a one- to three-year income tax credit for each qualified new employee filling a newly created position in an enterprise zone. The annual income tax credit amount ranges from $1,000-$4,500 per each qualified new employee, depending upon whether the business is located in a focus area or the qualified employee is considered to be economically disadvantaged by the state of Maryland.
The benefits associated with property tax credits differ depending upon whether a business is located in an enterprise zone or an enterprise zone focus area.
If your business is in an enterprise zone, it’s a 10-year tax credit against local real property taxes on improvements to real property. The amount of the credit is 80% of the eligible assessment in each of the first five years, and decreases 10% annually for years 6-10.
If your business is located in an enterprise zone focus area, it’s a 10-year tax credit against local real property taxes on improvements to real property. The amount of the credit is 80% of the increased assessed value in each of the 10 years. In addition, there is a 10-year tax credit against personal property taxes on new investment in personal property within a focus area. The amount of the credit is 80% of the eligible assessment in each of the 10 years.
There are various eligibility requirements and the business must be certified by the local enterprise zone administrator in which it is located to be eligible for the credit.
The More Jobs for Marylanders incentive program promotes the growth of manufacturing in Maryland by providing tax incentives for manufacturing job creation, investing in new equipment, and funds job training and apprenticeship programs.
Depending on whether the business is a new or existing manufacturing business, qualified businesses are eligible for a refundable income tax credit of 5.75% of wages for each qualified position, a credit against the state’s portion of the property tax, a refund of sales and use tax and a waiver of fees charged by SDAT. Enhanced incentives are available to businesses located in opportunity zones and the incentives may be claimed for up to 10 consecutive years.
Additional benefits are available to manufacturers in the form of accelerated and bonus depreciation on the investment in new equipment. Accelerated and bonus depreciation is available to any Maryland manufacturer and is not dependent on facility location or creating new jobs.
There are various eligibility requirements but businesses must be a manufacturer primarily engaged in activities that would be included in sectors 31, 32 or 33 of the North American Industrial Classification System (NAICS). Businesses have until June 1, 2022 to enroll in the program and be certified as a “qualified business entity.”
The One Maryland Tax Credit is an income tax credit for businesses that invest in an economic development project in a Tier 1 county and create a minimum number of qualified jobs.
A business may qualify for the following maximum credit amounts:
A maximum of $1 million in credits based on eligible project costs for businesses that create 10-24 qualified positions
A maximum of $2.5 million in credits based on eligible project costs for businesses that create 25-49 qualified positions
A maximum of $5 million in credits based on eligible costs for businesses that create at least 50 qualified positions
The business applies the credit against its state income tax liability and the credit may be carried forward for 10 years after the initial credit year. Additionally, there are enhanced incentives for projects located in opportunity zones.
In addition to the job creation minimums outlined above, the business must locate or expand in a Tier 1 county and have at least $500,000 in eligible project costs. Tier 1 counties include Allegany, Baltimore City, Caroline, Dorchester, Garrett, Kent, Somerset, Washington, Wicomico and Worcester. A business must be certified as a qualified business entity eligible for the credit and may not claim any expenses incurred or jobs created prior to being certified as a qualified business entity.
Read about other tax credits and exemptions:
Quick Guide: Work Opportunity Tax Credit for Employers covers how to qualify for and claim the credit
4 Tax Saving Tips Maryland Manufacturers Need to Know covers the Employee Retention Credit, the R&D Tax Credit, Sales & Use Tax Exemption and Personal Property Term Exemption
There are several considerations that need to be accounted for when applying for these credits. If you have questions about how to take advantage of tax credits, or how to apply for them, we can help. Contact us online or call 800.899.4623.