In this title the following words have the meanings indicated. “Active duty” has the meaning stated in § 9–901 of the State Government Article. “Applicable tax base” means the portion of the income of an investment conduit or a special exempt entity on which a tax is imposed under: § 11, § 527(b), § 528(b), § 852(b)(1), § 857(b)(1) or (4)(a), or § 860G(c)(1) of the Internal Revenue Code; or any other section of the Internal Revenue Code that the Comptroller determines by regulation to impose an entity level income tax on an entity that the Comptroller determines to be: an investment conduit under subsection (h)(2) of this section; or a special exempt entity under subsection (m)(2) of this section. “Corporation” includes an association or joint–stock company. “County income tax” means the county tax on income authorized in § 10–103 of this subtitle. “Federal adjusted gross income” means: for an individual other than a fiduciary, the individual’s adjusted gross income as determined under the Internal Revenue Code; for a fiduciary other than one described in item (3) of this subsection, the fiduciary’s taxable income, as determined under the Internal Revenue Code, increased by the amount allowed to the fiduciary as a deduction for a personal exemption under § 642(b) of the Internal Revenue Code; or for a fiduciary exempt from taxation under § 408(e)(1) or § 501 of the Internal Revenue Code, the fiduciary’s unrelated business taxable income as defined under § 512 of the Internal Revenue Code. “Fiduciary” means a person holding the legal title to property for the use and benefit of another person. “Fiduciary” does not include: an agent holding custody or possession of property that the principal of the agent owns; or a guardian, as defined in § 13–101 of the Estates and Trusts Article. “Individual” means, unless expressly provided otherwise, a natural person or a fiduciary. “Investment conduit” means: any of the following entities described in the Internal Revenue Code: a regulated investment company; a real estate investment trust; or a real estate mortgage investment conduit; or any other entity that the Comptroller determines by regulation to enjoy a status under the Internal Revenue Code pursuant to which the entity is not generally subject to income tax at the entity level so long as substantially all of its profits are distributed to the holders of equity interests in the entity. “Maryland taxable income” means: for an individual, Maryland adjusted gross income, less the exemptions and deductions allowed under this title; and for a corporation, Maryland modified income as allocated under this title. “Nonresident” means an individual who is not a resident. “Resident” means: an individual, other than a fiduciary, who: is domiciled in this State on the last day of the taxable year; or for more than 6 months of the taxable year, maintained a place of abode in this State, whether domiciled in this State or not; a personal representative of an estate if the decedent was domiciled in this State on the date of the decedent’s death; or a fiduciary, other than a personal representative, of a trust if: the trust was created, or consists of property transferred, by the will of a decedent who was domiciled in the State on the date of the decedent’s death; the creator or grantor of the trust is a current resident of the State; or the trust is principally administered in the State. “Resident” includes, for the part of the taxable year that an individual resides in this State, an individual who: moves to this State with the intent to be domiciled in this State; or is domiciled in this State and moves outside this State before the last day of the taxable year with the bona fide intention to remain permanently outside of this State. If an individual under paragraph (2)(ii) of this subsection again resides in this State within 6 months after having moved outside this State, there is a rebuttable presumption that the individual did not have a bona fide intention to remain permanently outside this State. “S corporation” means a corporation that elects to be taxed as a small business corporation under Subchapter S of the Internal Revenue Code. “Special exempt entity” means: any of the following entities described in the Internal Revenue Code: a farmers’ cooperative; a political organization; or a homeowners association; or any other entity not described in § 10–104(2) of this subtitle that the Comptroller determines by regulation to be exempt from federal income tax on all or some part of its income. “State income tax” means the State tax on income imposed under this title. “Taxable year” means: the period for which Maryland taxable income is computed under this title; and the annual accounting period defined in § 441 of the Internal Revenue Code. “Taxable year” includes: a calendar year ending on December 31, as defined in § 441 of the Internal Revenue Code; a fiscal year ending on the last day of a month other than December, as defined in § 441 of the Internal Revenue Code; if a return is made for a period of less than 1 year, the period for which the return is made; or if an election is made under § 441(f) of the Internal Revenue Code, the period for which a return is made.

Except as provided in § 10-104 of this subtitle, a tax is imposed on the Maryland taxable income of each individual and of each corporation.

In this section the following words have the meanings indicated. “Distributable cash flow” means taxable income reportable by a pass–through entity on its federal income tax return for the taxable year: adjusted, in the case of an entity using the accrual method of accounting to report federal taxable income, to reflect the amount of taxable income that would have been reported under the cash method of accounting; increased by the sum of: cash receipts for the taxable year that are not includable in the gross income of the entity, including capital contributions and loan proceeds; amounts allowable to the entity for the taxable year as deductions for depreciation, amortization, and depletion; and the decrease, if any, in the entity’s liability reserve as of the end of the taxable year; and decreased by the sum of: cash expenditures for the taxable year that are not deductible in computing the taxable income of the entity, not including distributions to shareholders, partners, or members; and the increase, if any, in the entity’s liability reserve as of the end of the taxable year. “Liability reserve” means accrued unpaid liabilities that are not deductible in computing taxable income. “Member” means: a shareholder of an S corporation; a general or limited partner of a partnership, limited partnership, or limited liability partnership; a member of a limited liability company; or a beneficiary of a business trust or statutory trust. “Nonresident entity” means an entity that is not formed under the laws of the State and is not qualified by or registered with the Department of Assessments and Taxation to do business in the State. “Nonresident taxable income” means any income described in § 10–210(b)(1) through (4) of this title. “Pass–through entity” means: an S corporation; a partnership; a limited liability company that is not taxed as a corporation under this title; or a business trust or statutory trust that is not taxed as a corporation under this title. “Pass–through entity’s taxable income” means the portion of a pass–through entity’s income under the federal Internal Revenue Code, calculated without regard to any deduction for taxes based on net income that are imposed by any state or political subdivision of a state, that is: in the case of a member who is a resident: except as provided under item 2 of this item, equal to the member’s distributive or pro rata shares of the pass–through entity; or on election by a pass–through entity in accordance with subsection (d)(4) of this section, derived from or reasonably attributable to the trade or business of the pass–through entity in the State; or in the case of a nonresident member, derived from or reasonably attributable to the trade or business of the pass–through entity in this State. Subject to paragraph (2) of this subsection, in addition to any other tax imposed under this title, a tax is imposed on each pass–through entity. Each pass–through entity: shall pay the tax imposed under paragraph (1) of this subsection with respect to the distributive shares or pro rata shares of the nonresident and nonresident entity members of the pass–through entity; or may elect to pay the tax imposed under paragraph (1) of this subsection with respect to the distributive shares or pro rata shares of all members of the pass–through entity. With respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(i) of this section, the tax shall be treated as a tax imposed on the nonresident or nonresident entity members that is paid on behalf of the nonresidents or nonresident entities by the pass–through entity. The Comptroller shall provide by regulation for the treatment of the tax imposed under subsection (b) of this section that is paid on behalf of a nonresident entity member that is itself a pass–through entity. With respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section, the tax shall be treated as a tax imposed on the pass–through entity itself. With respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(i) of this section, the tax imposed is the sum of: a rate equal to the sum of the rate of the tax imposed under § 10–106.1 of this subtitle and the top marginal State tax rate for individuals under § 10–105(a) of this subtitle applied to the sum of each nonresident individual member’s distributive share or pro rata share of the pass–through entity’s nonresident taxable income; and the rate of the tax for a corporation under § 10–105(b) of this subtitle applied to the sum of each nonresident entity member’s distributive share or pro rata share of the pass–through entity’s nonresident taxable income. Except as provided in paragraph (4) of this subsection, a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section shall calculate pass–through entity taxable income for resident members in accordance with subsection (a)(8)(i)1 of this section. With respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section and calculates pass–through entity taxable income for resident members in accordance with subsection (a)(8)(i)1 of this section, the tax imposed is the sum of: a rate equal to the sum of the rate of the tax imposed under § 10–106.1 of this subtitle and the top marginal State tax rate for individuals under § 10–105(a) of this subtitle applied to the sum of each individual member’s distributive share or pro rata share of the pass–through entity’s taxable income; and the rate of the tax for a corporation under § 10–105(b) of this subtitle applied to the sum of each entity member’s distributive share or pro rata share of the pass–through entity’s taxable income. A pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section may elect to calculate pass–through entity taxable income for resident members in accordance with subsection (a)(8)(i)2 of this section. With respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section and elects to calculate pass–through entity taxable income for resident members in accordance with subsection (a)(8)(i)2 of this section, the tax imposed is the sum of: a rate equal to the sum of the rate of the tax imposed under § 10–106.1 of this subtitle and the top marginal State tax rate for individuals under § 10–105(a) of this subtitle applied to the sum of each resident individual member’s distributive share or pro rata share of the pass–through entity’s taxable income as described under subsection (a)(8)(i)2 of this section; the rate of the tax for a corporation under § 10–105(b) of this subtitle applied to the sum of each resident entity member’s distributive share or pro rata share of the pass–through entity’s taxable income as described under subsection (a)(8)(i)2 of this section; a rate equal to the sum of the rate of the tax imposed under § 10–106.1 of this subtitle and the top marginal State tax rate for individuals under § 10–105(a) of this subtitle applied to the sum of each nonresident individual member’s distributive share or pro rata share of the pass–through entity’s nonresident taxable income; and the rate of the tax for a corporation under § 10–105(b) of this subtitle applied to the sum of each nonresident entity member’s distributive share or pro rata share of the pass–through entity’s nonresident taxable income. A pass–through entity that pays the tax under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section shall indicate, in the form and manner prescribed by the Comptroller, whether the pass–through entity is calculating the tax in accordance with paragraph (2) or (4) of this subsection. If a pass–through entity fails to indicate in accordance with subparagraph (i) of this paragraph the manner in which the pass–through entity is calculating the tax, the tax shall be calculated in accordance with paragraph (2) of this subsection. The tax required to be paid for any taxable year by a pass–through entity may not exceed: with respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(i) of this section, the sum of all of the nonresident and nonresident entity members’ shares of the pass–through entity’s distributable cash flow; and with respect to a pass–through entity that pays the tax imposed under subsection (b)(1) of this section in accordance with subsection (b)(2)(ii) of this section, the sum of all of the members’ shares of the pass–through entity’s distributable cash flow. In accordance with § 10–701.1 of this title, each member may claim a credit against the tax imposed on the member for the member’s proportionate share of the tax paid by the pass–through entity under subsection (b) of this section. The tax imposed under subsection (b)(1) of this section that is paid in accordance with subsection (b)(2)(i) of this section and for which no election is made under subsection (b)(2)(ii) of this section does not apply with respect to the distributive share or pro rata share of a member that is itself a pass–through entity formed under the laws of the State or qualified by or registered with the Department of Assessments and Taxation to do business in the State. A member of a pass–through entity that is itself a pass–through entity as described in subparagraph (i) of this paragraph shall itself comply with the provisions of this section. The tax imposed under subsection (b)(1) of this section that is paid in accordance with subsection (b)(2)(i) of this section and for which no election is made under subsection (b)(2)(ii) of this section does not apply with respect to the direct or indirect distributive share or pro rata share of a member that is: a real estate investment trust as defined by § 856 of the Internal Revenue Code; or an entity that is exempt from taxation under § 501 of the Internal Revenue Code. The Comptroller may provide by regulation for: the filing of composite returns by a pass–through entity on behalf of its nonresident and nonresident entity members; and application of or exemption from the tax imposed under subsection (b) of this section for a pass–through entity: that files a composite return on behalf of nonresident and nonresident entity members; or the entity members of which are tax exempt. Subject to paragraph (2) of this subsection, if a partnership fails to pay the tax when due, the tax may be collected from the partners under the law applicable to debts of the partnership, with the partnership and partners having rights of contribution against any partner on whose behalf the tax is paid. Unless it is established by the Comptroller that the partner participated in a pattern of distributions to one or more partners with the intention of defeating the partnership liability for the tax imposed under subsection (b) of this section, any partner otherwise liable under paragraph (1) of this subsection shall be liable for the tax imposed on the partnership only to the extent of distributions from the partnership to that partner after the tax was due to be paid by the partnership. Except as provided in § 10–701.1 of this title, nothing in this section limits or affects in any way the liability of an individual nonresident member or a nonresident entity member for the tax imposed on the individual nonresident or nonresident entity under § 10–102 of this subtitle. The tax imposed under subsection (b)(1) of this section that is paid in accordance with subsection (b)(2)(i) of this section and for which no election is made under subsection (b)(2)(ii) of this section does not apply to a publicly traded pass–through entity that has agreed to file with the Comptroller an annual information return reporting the name, address, taxpayer identification number, and other information requested by the Comptroller of each nonresident or nonresident entity member whose distributive share or pro rata share of the pass–through entity’s nonresident taxable income for the taxable year exceeds $500.

Each county shall have a county income tax on the Maryland taxable income of: each resident, other than a fiduciary, who on the last day of the taxable year: is domiciled in the county; or maintains a principal residence or a place of abode in the county; each personal representative of an estate if the decedent was domiciled in the county on the date of the decedent’s death; each resident fiduciary of: a trust that is principally administered in the county; or a trust that is otherwise principally connected to the county and is not principally administered in the State; and except as provided in § 10-806(c) of this title, a nonresident who derives income from salary, wages, or other compensation for personal services for employment in the county. Except for the county income tax, a county, municipal corporation, special taxing district, or other political subdivision may not impose a general local income, earnings, or payroll tax, a general occupational license tax, or a general license or permit tax based on income, earnings, or gross receipts.

The income tax does not apply to the income of: a common trust fund, as defined in § 3–501(b) of the Financial Institutions Article; except as provided in §§ 10–101(e)(3) of this subtitle and 10–304(2) of this title, an organization that is exempt from taxation under § 408(e)(1) or § 501 of the Internal Revenue Code; a financial institution that is subject to the financial institution franchise tax; a person subject to taxation under Title 6 of the Insurance Article; except as provided in § 10–102.1 of this subtitle, a partnership, as defined in § 761 of the Internal Revenue Code; except as provided in § 10–102.1 of this subtitle and § 10–304(3) of this title, an S corporation; except as provided in § 10–304(4) of this title, an investment conduit or a special exempt entity; or except as provided in § 10–102.1 of this subtitle, a limited liability company as defined under Title 4A of the Corporations and Associations Article to the extent that the company is taxable as a partnership, as defined in § 761 of the Internal Revenue Code.

For an individual other than an individual described in paragraph (2) of this subsection, the State income tax rate is: 2% of Maryland taxable income of $1 through $1,000; 3% of Maryland taxable income of $1,001 through $2,000; 4% of Maryland taxable income of $2,001 through $3,000; 75% of Maryland taxable income of $3,001 through $100,000; 5% of Maryland taxable income of $100,001 through $125,000; 25% of Maryland taxable income of $125,001 through $150,000; 5% of Maryland taxable income of $150,001 through $250,000; 75% of Maryland taxable income of $250,001 through $500,000; 25% of Maryland taxable income of $500,001 through $1,000,000; and 50% of Maryland taxable income in excess of $1,000,000. For spouses filing a joint return or for a surviving spouse or head of household as defined in § 2 of the Internal Revenue Code, the State income tax rate is: 2% of Maryland taxable income of $1 through $1,000; 3% of Maryland taxable income of $1,001 through $2,000; 4% of Maryland taxable income of $2,001 through $3,000; 75% of Maryland taxable income of $3,001 through $150,000; 5% of Maryland taxable income of $150,001 through $175,000; 25% of Maryland taxable income of $175,001 through $225,000; 5% of Maryland taxable income of $225,001 through $300,000; 75% of Maryland taxable income of $300,001 through $600,000; 25% of Maryland taxable income of $600,001 through $1,200,000; and 50% of Maryland taxable income in excess of $1,200,000. Except as provided in subparagraph (ii) of this paragraph, if the Maryland adjusted gross income of an individual described in paragraph (1) or (2) of this subsection includes any amount of net capital gain, as defined and determined under the Internal Revenue Code, the State income tax for the individual is the sum of: the rates specified in paragraph (1) or (2) of this subsection applied to Maryland taxable income; and an additional 2% of the amount of net capital gain included in the individual’s Maryland adjusted gross income. To the extent included in calculating net capital gain for federal income tax purposes, any amount of capital gain from the sale or exchange of the following assets is not subject to the additional 2% tax rate specified in subparagraph (i)2 of this paragraph: any residential dwelling sold for less than $1,500,000 that is the individual’s primary residence, including the land on which the dwelling is located and any accessory dwelling unit associated with the residence, if the dwelling is a single–family home, a town house, a row home, a residential condominium unit, or a residential cooperative unit; assets held in: a cash or deferred arrangement plan under § 401(k) of the Internal Revenue Code; a tax–sheltered annuity or custodial account under § 403(b) of the Internal Revenue Code; a deferred compensation plan under § 457(b) of the Internal Revenue Code; an individual retirement account or individual retirement annuity under § 408 of the Internal Revenue Code; a Roth individual retirement account under § 408A of the Internal Revenue Code; or a defined contribution plan, a defined benefit plan, or a similar retirement savings plan; cattle, horses, or breeding livestock held for more than 12 months if, for the taxable year of the sale or exchange, more than 50% of the individual’s gross income for the taxable year, including income from the sale or exchange of capital assets, is from farming or ranching; land that is subject to a conservation, agricultural, or forest preservation easement or that will be subject to a conservation, agricultural, or forest preservation easement on the sale or exchange of the land; property used in a trade or business, the cost of which is deductible under § 179 of the Internal Revenue Code; or affordable housing owned by a nonprofit organization. The provisions of paragraph (3) of this subsection shall apply for individuals described in paragraph (1) or (2) of this subsection with a federal adjusted gross income in excess of $350,000. The State income tax rate for a corporation is 8.25% of Maryland taxable income. For a married couple filing a joint income tax return, the rates specified in subsection (a) of this section apply to the joint Maryland taxable income of the married couple. For a nonresident: the rates specified in subsection (a) of this section apply to the nonresident’s Maryland taxable income, calculated without regard to the subtractions under § 10–210(b), (e), and (f) of this title; and the State income tax imposed equals the result obtained under item (1) of this subsection multiplied times a fraction: the numerator of which is the nonresident’s Maryland taxable income, calculated with the subtractions under § 10–210(b), (e), and (f) of this title; and the denominator of which is the nonresident’s Maryland taxable income, calculated without regard to the subtractions under § 10–210(b), (e), and (f) of this title.

Each county shall set, by ordinance or resolution, a county income tax equal to at least 2.25% but not more than 3.30% of an individual’s Maryland taxable income for a taxable year beginning after December 31, 2001. A county income tax rate continues until the county changes the rate by ordinance or resolution. A county may not increase its county income tax rate above 2.6% until after the county has held a public hearing on the proposed act, ordinance, or resolution to increase the rate. The county shall publish at least once each week for 2 successive weeks in a newspaper of general circulation in the county: notice of the public hearing; and a fair summary of the proposed act, ordinance, or resolution to increase the county income tax rate above 2.6%. Notwithstanding paragraph (1) or (2) of this subsection, in Howard County, the county income tax rate may be changed only by ordinance and not by resolution. If a county changes its county income tax rate, the county shall: increase or decrease the rate in increments of one one–hundredth of a percentage point, effective on January 1 of the year that the county designates; and give the Comptroller notice of the rate or income bracket change and the effective date of the rate or income bracket change on or before July 1 prior to its effective date. For any county income tax rate that is effective on or after January 1, 2022, the county may apply the county income tax on a bracket basis. A county that imposes the county income tax on a bracket basis: shall set, by ordinance or resolution, the income brackets that apply to each income tax rate; may set income brackets that differ from the income brackets to which the State income tax applies; may not set a minimum income tax rate less than 2.25% of an individual’s Maryland taxable income; and may not apply an income tax rate to a higher income bracket that is less than the income tax rate applied to a lower income bracket. A county may request information from the Comptroller to assist the county in determining income brackets and applicable income tax rates that are revenue–neutral for the county.

An individual subject to the State income tax under § 10-105(a) of this subtitle, but not subject to the county income tax under § 10-106 of this subtitle, shall be subject to the tax imposed under this section. The rate of the tax imposed under this section shall be equal to the lowest county income tax rate set by any Maryland county in accordance with § 10-106 of this subtitle. The tax imposed under this section shall be distributed by the Comptroller in accordance with § 2-609 of this article.

To the extent practicable, the Comptroller shall apply the administrative and judicial interpretations of the federal income tax law to the administration of the income tax laws of this State.

Except as provided in subsection (c) of this section and unless expressly provided otherwise by law, an amendment of the Internal Revenue Code that affects the determination of federal adjusted gross income or federal taxable income, does not affect the determination of Maryland taxable income under this title for: any taxable year that begins in the calendar year in which the amendment is enacted; or any taxable year that precedes the calendar year in which the amendment is enacted. Within 60 days after an amendment of the Internal Revenue Code is enacted, the Comptroller shall prepare and submit to the Governor and, subject to § 2–1257 of the State Government Article, the President of the Senate and the Speaker of the House a report that outlines: the changes in the Internal Revenue Code; and the impact of those changes on State revenue and on various classes and types of taxpayers. Subsection (a) of this section does not apply to an amendment of the Internal Revenue Code if the Comptroller determines that the impact of the amendment on State income tax revenue is less than $5,000,000 for: the fiscal year that begins during the calendar year in which the amendment is enacted; or any fiscal year that precedes the calendar year in which the amendment is enacted.

The Comptroller may distribute, apportion, or allocate gross income, deductions, credits, or allowances between and among two or more organizations, trades, or businesses, whether or not incorporated, whether or not organized in the United States, and whether or not affiliated, if: the organizations, trades, or businesses are owned or controlled directly or indirectly by the same interests within the meaning of § 482 of the Internal Revenue Code; and the Comptroller determines that the distribution, apportionment, or allocation is necessary in order to reflect an arm’s length standard within the meaning of § 1.482-1 of the Regulations of the Internal Revenue Service of the U.S. Treasury and to reflect clearly the income of those organizations, trades, or businesses. The Comptroller shall apply the administrative and judicial interpretations of § 482 of the Internal Revenue Code in administering this section.