Title 03 — Subtitle 04. Income Tax

Every employer subject to the jurisdiction of this State making payment to resident individuals of this State of salaries, wages, or compensation for personal services, and every employer making payment to nonresident individuals of salary, wages, or compensation for personal services rendered in this State, shall withhold from payments subject to withholding and transmit to the Comptroller the tax, taking into consideration:

The credit under §A(1)(b) of this regulation does not affect the calculation of the tax to be withheld from payments subject to withholding and the resident or nonresident shall receive credit for the full amount of tax withheld.

Every payor of a payment subject to withholding as provided in Tax-General Article, §10-908, Annotated Code of Maryland, shall withhold and remit to the Comptroller the tax.

Who Shall File. Except as provided for in §C(1)—(4) of this regulation, an employee shall file with the employer at the time of employment, a withholding exemption certificate if:

Form to be Filed. An employee who is required to file a withholding exemption certificate shall file with the employer a Form MW 507 or other approved form.

Information Required.

Exemptions Allowed. An employee may claim on the withholding exemption certificate those personal and dependent exemptions provided for under Tax-General Article, §10-211, Annotated Code of Maryland.

Additional Exemptions. An employee may claim an additional exemption for each exemption amount allowed for a taxable year under Tax-General Article, §10-211, Annotated Code of Maryland, of the excess of the total of estimated itemized deductions, alimony payments, allowable child care expenses, qualified retirement contributions, and business losses, over the standard deduction allowance.

Lesser Number Allowed. An employee may claim on a withholding exemption certificate a lesser number of exemptions than that to which the employee is legally entitled but shall not claim a greater number of exemptions than those to which he or she is legally entitled.

Additional Withholding. In addition to the tax required to be deducted and withheld, the employer and employee may agree that an additional amount be withheld from the employee's wages. The additional amount agreed upon shall be considered as tax required to be deducted and withheld.

Increase in Exemptions. An employee may file a new withholding exemption certificate with the employer at any time if there is an increase in the number of exemptions to which the employee is entitled.

Decrease in Exemptions. If, on any day during the calendar year, the number of withholding exemptions to which the employee is entitled is less than the number of exemptions claimed in the withholding exemption certificate then in effect, the employee shall file a new withholding exemption certificate with the employer within 10 days after the change occurs.

More than One Employer. If a withholding exemption certificate is in effect with one employer, an employee is not entitled to claim the same withholding exemptions on any other certificate filed with another employer.

Failure to File. If an employee does not file a withholding exemption certificate with the employer when required, the employer shall compute the amount of withholding on the basis of one exemption, the employee's personal exemption.

Unpaid Tax Liability and Refund Intercept Request. The Comptroller may notify an individual's employer in writing that the individual employee has an unpaid tax liability or that the employee is subject to a tax refund intercept request. The employer shall compute the amount of withholding on the number of exemptions set forth in the notice. The number of exemptions is limited to the exemption allowed on the employee's prior year's return.

Failure to File Income Tax Returns. The Comptroller may notify an individual's employer in writing that an individual employee has failed to file a required income tax return. The employer shall compute the amount of withholding on the basis of one exemption.

Invalid Certificate. A withholding exemption certificate is invalid if:

Effect of Invalid Certificate. An employer receiving an invalid withholding exemption certificate shall consider it a nullity for the purposes of withholding, and the employer shall compute the amount of withholding on the basis of a single person claiming only the employee's personal exemption.

Submission of Withholding Certificate.

Period During Which Withholding Exemption Certificate Remains in Effect. Except as provided in §B(14) of this regulation, a valid withholding certificate shall continue in effect until another valid withholding exemption certificate takes effect.

Nonresident individuals employed as seamen upon vessels engaged in oceanic and foreign trade or commerce while these vessels are within any of the ports of this State;

A nonresident individual whose state of domicile has a written reciprocal agreement with Maryland exempting salary, wages, or other compensation from taxation;

Any employee who has furnished a withholding exemption certificate Form MW 507 to his employer certifying that he:

A nonresident individual subject to the Servicemembers Civil Relief Act, as amended by the Military Spouses Residency Relief Act:

Out-of-state employees as defined under Public Safety Article, §14-219, Annotated Code of Maryland.

Every employer and payor subject to the withholding provisions shall make a return to the Comptroller on Form MW 506.

The required return shall be filed on:

Monthly Basis. When the aggregate amount required to be deducted and withheld by the employer or payor for any quarterly period can reasonably be expected to be at least $700, the employer or payor is required to file the return and pay the tax monthly on or before the 15th day of the following month.

Quarterly Basis. When the aggregate amount required to be deducted and withheld by the employer or payor for any quarterly period is less than $700, the employer or payor is required to file and pay the tax quarterly on or before the 15th day of the following month for each quarter, January—December.

Annual Basis.

Periodic Basis.

Change in Quarterly Filing. If an employer or payor has become liable to a monthly return of withholding, the employer or payor shall continue on this basis until a request in writing to change to quarterly reports is filed and approved by the Comptroller. The request shall contain evidence that the tax withheld is less than $700 per quarter and will be less than that amount for the next 12 months. If an employer or a payor requests in writing for permission to change from a monthly return to a quarterly return on the ground that withholding has become less than $700 for each quarter, this change shall be permitted only at the beginning of a calendar year.

On or before January 31 of each year, the employer shall furnish to each individual who was employed during the preceding year Copy 2 of Federal Form W-2.

On or before January 31 of each year, the employer or payor shall file with the Comptroller the following forms, returns, and information:

Any employer who negligently shall fail either to withhold the required tax or to pay it to the Comptroller as specified, or both, shall be held personally and individually liable for all monies so involved, and if the employer is a corporate entity, the personal liability shall extend and be applicable to any:

The tax withheld under this regulation shall be deemed to be held by the employer in trust for the State and shall be duly recorded by an employer in a ledger account so as to clearly indicate the amount of tax withheld and that this amount is the property of the State. Failure to transmit to the Comptroller any tax withheld shall constitute a lien in favor of the State recoverable in the manner provided under Tax-General Article, Title 13, Subtitle 8, Annotated Code of Maryland. The failure on the part of an employer to furnish an individual resident or nonresident from whom tax has been withheld a statement of it setting forth the information prescribed on the Federal Form W-2, or where the required statement so furnished is deemed a fraudulent statement, then the employer shall for each failure be subject to a civil penalty in the amount of $50.

The failure of a person, as defined in Tax-General Article, §1-101(p), Annotated Code of Maryland, to furnish an annual withholding reconciliation report as required under Tax-General Article, §10-911, Annotated Code of Maryland, or where the required report so furnished is deemed a fraudulent statement, then the employer or payor shall, for each violation, be subject to a civil penalty in the amount of $100.

A payor shall withhold the amount of income tax from an annuity, sick pay, or retirement distribution as defined in Tax-General Article, §10-905(a-1), Annotated Code of Maryland, that the payee requests. The payee shall file Form MW 507P with the payor to elect to withhold the payments. The payor is also subject to the annual reconciliation report requirement and shall file this return, Form MW 508, with the Comptroller.

Eligible Rollover Distribution.

Every individual receiving taxable income which is not subject to the withholding provisions of the Maryland Income Tax Law and Regulation .01 of this chapter and which is not specifically exempt under the Law shall file on Form 502-D or 502-DEP a declaration of estimated tax if the individual's gross income not subject to Maryland employer withholding would be expected to develop a tax of more than $500. Declarations with payments in full are to be filed within 60 days of the receipt of $500 or more of income from awards, prizes, lotteries, or raffles, whether paid in cash or property. The declaration of estimated tax shall be filed on or before April 15, June 15, September 15, and January 15.

Payment of 1/4 of the tax estimated to be due and owing shall be made at the time fixed in these regulations for the filing of the estimated tax return on Form 502-D or 502-DEP. An amended declaration of estimated tax may be filed on any of the dates specified in these regulations subsequent to the filing of the estimated return required to be filed on or before April 15 of the current calendar year. Instead of the final estimated return due to be filed for a given calendar year on or before January 15 following the close of the calendar year, the individual, if the individual so elects, may file, on or before January 31, the individual's final return at which time any tax remaining unpaid shall be paid in full. The filing of the final return and the payment in full of the tax shown on it, less any payment of tax previously made, shall be considered as the filing of the estimated return due on or before January 15 or as an amendment to a previously filed declaration of estimated tax covering the same taxable year.

Overpayment of the previous year income taxes may be applied to current year estimated income tax. The overpayment may be partially or fully applied to the first installment. If the overpayment equals or exceeds the estimated tax liability for the first installment, the declaration is not required. If the overpayment does not equal the estimated tax liability, a declaration should be filed and the balance paid.

Unpaid Tax.

“Day”, for purposes of §B(7) of this regulation, includes any part of a day, provided, however, that a continuous period of 24 hours or less may not constitute more than 1 day.

“Dependent” means any individual as defined in §152 of the Internal Revenue Code.

“Individual” means a natural person.

“Member” means:

“Nonresident” means an individual who is not a resident of this State.

“Pass-through entity” means:

Resident.

As used to file their federal income tax return; or

As if the individual had been required to file a federal income tax return.

One spouse is a resident and the other spouse is a nonresident;

The spouses are domiciled, or maintain principal places of abode, in different counties on the last day of the taxable year;

The spouses have different taxable periods; or

The Comptroller determines circumstances warrant.

An active member of the armed forces;

A midshipman of the Naval Academy in Annapolis;

A commissioned officer of the United States Public Health Service;

A commissioned officer of the National Oceanic and Atmospheric Administration; or

The spouse of a servicemember that is an active member of the armed forces, the commissioned corps of the National Oceanic and Atmospheric Administration, or the commissioned corps of the United States Public Health Service, who is present in this State solely to be with the servicemember that is present in this State in compliance with military orders.

Use the same filing status used to file their federal income tax return; or

Use the same filing status as if the individual had been required to file a federal income tax return.

One spouse is a resident and the other spouse is a nonresident;

The spouses have different taxable periods; or

The Comptroller determines circumstances warrant.

Single;

Claimed as a dependent by another taxpayer; and

Required to file a State income tax return.

Subject to the provisions under §§B and C of this regulation, a pass-through entity doing business in this State that pays tax on behalf of nonresident members as required under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, may file a composite return on behalf of all or some of its nonresident members.

A pass-through entity doing business in this State and electing to pay tax with respect to the distributive or pro rata shares of all members under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, is not permitted to file a composite return on behalf of any member.

Due Date. A composite return shall be filed by the due date for the filing of an information return under COMAR 03.04.07.03A.

They are individuals;

They elect in writing to the pass-through entity to be included in the composite return;

Their only source of income in Maryland is from the pass-through entity filing the composite return;

They agree that the Maryland taxable income reported on the composite return shall be taxed at a rate which is the sum of:

They agree that the pass-through entity is acting as their agent for the following purposes:

They are members of a pass-through entity that pays tax on behalf of nonresident members as required under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland; and

They have no modifications to income other than the modification required as a result of Maryland's decoupling from the additional depreciation allowance and special 5-year net operating loss carryback provisions that may be claimed on a composite return and, for tax years 2020 and 2021, the subtraction of a coronavirus relief payment under Tax-General Article, §10-207(jj), Annotated Code of Maryland.

Statement of Verification. The composite return shall contain a statement signed by an authorized official of the pass-through entity verifying that the nonresident individuals included in the return qualify under §B of this regulation.

Tax Rate. The Maryland taxable income reported on the composite return shall be taxed at a rate which is the sum of:

The composite return shall contain a schedule which includes:

Credit for Taxes Paid Other States. Credit for taxes paid other states is not permitted on the composite return.

Signature.

Effect of Filing a Composite Return. The filing of a composite return on behalf of nonresident members is considered the return of each nonresident member included in the return.

Commissions of a traveling salesman or agent which depend directly on sales made are allocated outside this State if the:

Compensation other than commissions which depend directly on sales made for service performed partly within and partly outside this State shall be allocated based on the total number of working days employed outside this State compared to all working days employed both within and outside this State.

Percentage allocation which is:

Apportionment of sales as described in COMAR 03.04.03.08; or

A method or methods subject to approval by the Comptroller.

Wages, salary, or other compensation for services performed in this State which are exempt by federal law or treaty from federal but not State tax on income;

Oil percentage depletion allowance as provided for under Tax-General Article, §10-204(e), Annotated Code of Maryland, to the extent attributable to sources in this State;

50 percent of the sum of the tax preference items as provided for under Tax-General Article, §10-205(f), to the extent derived from real or tangible personal property located in this State;

Amount of the credit claimed under Tax-General Article, §10-702, Annotated Code of Maryland, for wages paid to an employee in an enterprise zone located in this State;

Amount of expenses for reforestation or timber stand improvement as provided for under Tax-General Article, §10-205(c); and

The amount of any loss or adjustment to income that is:

Income derived from:

Amounts derived from:

The value of:

A nonresident individual may elect to use the standard deduction whether or not the individual itemizes deductions on the individual's federal income tax return in determining federal taxable income.

Limitation. A nonresident may claim the standard deduction on the Maryland return in the amount computed by multiplying the appropriate standard deduction by a fraction:

Only an individual who itemizes deductions on the federal income tax return may elect to itemize deductions on the individual's Maryland income tax return.

Limitation. A nonresident may claim itemized deductions on the Maryland income tax return:

A complete copy of the federal audit including any exhibits attached to it; and

The taxpayer's acceptance of the IRS final determination or the taxpayer's grounds for objection to the IRS determination.

Chesapeake Bay and Endangered Species Fund, as established under Natural Resources Article, §1-701 et seq., Annotated Code of Maryland;

Developmental Disabilities Waiting List Equity Fund, as established under Health-General Article, §7-205, Annotated Code of Maryland;

Maryland Cancer Fund, as established under Health-General Article, §20-117, Annotated Code of Maryland; or

Maryland Fair Campaign Financing Fund, as established under Election Law Article, §15-103, Annotated Code of Maryland.

An addition to the tax owed by the taxpayer; or

A reduction of the refund due the taxpayer.

A taxpayer may designate a contribution which is greater than or less than the refund due on the return.

If a taxpayer designates a contribution which is less than the refund due, then the taxpayer's designation shall be given effect up to the full amount of the designated contribution, with the balance of the tax refund to be processed according to the procedures generally applicable to refunds.

If the taxpayer's designated contribution is greater than the refund due, then:

Shall be filed by the original due date of the return; and

Extends only the time allowed to file the income tax return.

Expects to owe no tax for the taxable year; and

Has filed federal Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, with the IRS.

In this regulation, the following terms have the meanings indicated.

Terms Defined.

Regardless of the number of investment options included in an investment account:

For a married couple, if each spouse makes a contribution of at least $2,500 to an investment account for the same qualified designated beneficiary, and the couple files a joint Maryland income tax return, the subtraction modification for the couple on the joint return is $5,000.

An account holder is required to add to federal adjusted gross income in computing Maryland taxable income any distribution received from the Maryland Senator Edward J. Kasemeyer College Investment Plan in the taxable year that is not used on behalf of the qualified designated beneficiary for qualified higher education expenses.

The addition required in §C(1) of this regulation shall be reduced by any amount included in the account holder's federal adjusted gross income as a result of the distribution.

The cumulative amount of the addition required under this section for the taxable year and all prior taxable years may not exceed the cumulative amount allowed as a subtraction under §B of this regulation and Tax-General Article, §10-208(o), Annotated Code of Maryland, for the taxable year and all prior taxable years for contributions made by an account holder to an investment account under which the distribution is received.

If a married couple files a joint federal income tax return but elect to file separate income tax returns pursuant to Regulation .02 of this chapter, or if the nonresident spouse is not required to file an income tax return, then the resident individual may, unless the Comptroller requires or allows another method:

For purposes of allocating itemized deductions under §C(1)(b)(i) of this regulation, “attributable exclusively” means that:

In this regulation, the following terms have the meanings indicated.

Terms Defined.

For any taxable year beginning after December 31, 2020, but before January 1, 2024, an individual may subtract up to $1,000 of donations made by the taxpayer during the taxable year to a qualified charitable entity from federal adjusted gross income to determine Maryland adjusted gross income.

To claim the subtraction under §B(1) of this regulation, the taxpayer shall file with the income tax return on which the subtraction modification is taken a statement with the following information:

In order to register with the Comptroller as a qualified charitable entity, an entity shall:

Upon request by a donor, a qualified charitable entity shall issue to the donor a receipt indicating:

When the value of a donation equals or exceeds $250, the donor shall obtain and keep in their records a receipt from the qualified charitable entity as described in §C(2) of this regulation.

A qualified charitable entity shall provide annually to the Comptroller by January 31 for the prior tax year:

In this regulation, the following terms have the meaning indicated.

Terms Defined.

Subject to the limitations in §B(2) of this regulation, the following amounts are allowed as a subtraction from the federal adjusted gross income to determine Maryland adjusted gross income:

Limitations.

An individual may jointly establish an account with another person if the joint account holders are both first-time homebuyers and file a joint State income tax return.

Joint Returns.

An account holder claiming a subtraction shall file with the income tax return on which the subtraction is claimed, and each subsequent year, whether or not the subtraction is claimed in each subsequent year, until the funds are used for eligible costs, a list of transactions for the account during the taxable year.

On withdrawal of funds from the account, submit to the Comptroller a detailed account of the eligible costs toward which the account funds were applied and a statement of the amount of funds remaining in the account, if any.

The detailed account of the eligible costs described in §C(2) of this regulation shall include:

Except as authorized under §D(2)(a) and (3) of this regulation, if the account holder withdraws any funds for which a subtraction has been claimed from the account for a purpose other than eligible costs for the purchase of a home:

Rollovers.

A disbursement of any assets of a first-time homebuyer savings account under a filing by an account holder for protection under the United States Bankruptcy Code, 11 U.S.C. §§101—1330, does not subject the account holder to the liabilities described in §D(1) of this regulation.

A use of the account funds to pay a financial institution’s administrative costs is not be considered a withdrawal from the account subject to the provisions of §D(1) of this regulation if the administrative costs:

“Allocation” means the assignment of income to a particular state.

“Apportionment” means the allocation of income between states by the use of a formula.

Affiliated corporations which are included in a consolidated federal return shall file separate Maryland returns, and each separate corporation shall report its taxable income without regard to any consolidation for federal income tax purposes;

Real estate investment trusts which qualify as such under the Internal Revenue Code shall be taxable in Maryland to the same extent they are taxable under federal law;

S corporations allowed Subchapter S filing status under the Internal Revenue Code shall file a corporate income tax return to:

Corporate partners of partnerships shall report their share of partnership income or loss on the corporate return;

Corporations exempt from taxation under Internal Revenue Code, §501, with unrelated business taxable income shall file a corporate income tax return to report income to the extent taxable for federal purposes;

Those institutions set forth in Tax-General Article, §8-101(c)(2)(vi), Annotated Code of Maryland, are subject to the following:

Insurance companies within the meaning of Insurance Article, Annotated Code of Maryland;

Common trust funds as defined in Financial Institutions Article, §3-501(b), Annotated Code of Maryland; and

Nonprofit organizations exempt from federal income tax under the Internal Revenue Code, §501(c).

A corporation unable to file by the due date shall file an Application for Extension to File Corporation Income Tax Return (Form 500E) to be granted an automatic extension of up to 7 months.

The application shall be filed by the original due date and extends only the time allowed to file the income tax return.

Full payment of the expected tax due is required with the application.

Failure to attach the required federal copy to the Maryland return shall constitute a nonfiling.

Corporations included in a consolidated filing for federal purposes shall attach a copy of pages one through five of the actual consolidated return and shall also provide a copy of the columnar schedule of income and expense, and of balance sheet items, reconciling the separate items of each member corporation to the consolidated totals.

If at any time the items of federal net taxable income reported for any taxable year or period are adjusted by the Internal Revenue Service (IRS) and will increase Maryland taxable income, a copy of the final IRS adjustment report shall be submitted within 90 days under separate cover.

If an affiliated group of corporations files a consolidated federal return, then a copy of the actual IRS adjustment report shall be submitted and shall include a schedule reconciling the separate adjustments for each member corporation.

A claim for refund based upon a federal adjustment shall be filed within the time provided under Tax-General Article, §13-1104(c), Annotated Code of Maryland.

Notification of a federal audit shall be submitted under separate cover, indicating the corporate name, federal employer identification number, tax year or years involved, and information sufficient to identify the IRS audit and issue or issues.

To correct a previously filed return, the corporation shall file an amended return and provide an explanation and reconciliation of the changes.

To claim a net operating loss carryback:

To claim a refund, the corporation shall file an amended return within the time provided under Tax-General Article, §13-1104(c), Annotated Code of Maryland.

Organizations exempt from taxation under §501 of the Internal Revenue Code shall register with the Comptroller of the Treasury, Revenue Administration Division.

An authorized official of the exempt organization shall register the organization by submitting a copy of the Internal Revenue Service determination letter.

A corporation shall make quarterly estimated tax payments during the tax period if the estimated tax for the complete period will exceed $1,000.

Payments of $10,000 or more shall be remitted by immediately available funds pursuant to COMAR 03.01.02.

A corporation shall file Form 500D with remittances by the required installment due dates.

A declaration of estimated income tax payment shall be due by the 15th day of the 4th, 6th, 9th, and 12th month following the beginning of the tax year or period.

The total estimated tax payments for the year shall be at least 90 percent of the tax developed for the current taxable year or 110 percent of the tax developed for the prior tax year.

At least 25 percent of the total estimated tax shall be remitted by each of the four installment due dates.

For a short tax period, the total estimated tax for the taxable period shall be paid equally over the number of installment due dates occurring during the short tax year. However, estimated tax need not be paid for a short period of less than 4 months.

Assessment of interest and penalty for underpayment of estimated tax shall be based on the tax for the current taxable year.

For the loss year, the net operating loss may be used to offset Maryland modifications.

The deductions for carryback and carryover shall be calculated and claimed following federal income tax provisions, and a modification to the amount of the deductions may not be allowed under Maryland income tax law.

When an affiliated group of corporations files a consolidated return for federal purposes, each separate member corporation shall calculate any net operating loss deduction based on its separate federal taxable income and loss and as if the member corporation was not involved in a consolidated filing and filed a separate federal return.

If a corporation elected to relinquish the entire carryback period for federal purposes, a copy of the federal election shall be submitted with the Maryland return for the loss year.

A net operating loss generated when a corporation is not subject to Maryland income tax law may not be allowed as a deduction to offset Maryland income.

If a liquidated or acquired corporation was not subject to Maryland income tax law when its net operating loss was generated, then the acquiring corporation which is subject to Maryland income tax law may not use the net operating loss of the liquidated or acquired corporation as a deduction to offset Maryland income.

All of the factors of the apportionment formula shall be developed as fractions, the numerator of which shall be the total of items in this State during the tax year, and the denominator shall be the total of items everywhere during the tax year.

Each factor shall be separately determined and the number of factors used shall be averaged to arrive at the final apportionment factor.

The items on both numerator and denominator of each factor shall be adjusted by the applicable addition and subtraction adjustments provided under Tax-General Article, Title 10, Subtitle 3, Part II, Annotated Code of Maryland.

The items of both numerator and denominator shall be reconciled to the items as categorized and reported on the federal income tax return.

If a return is filed by a corporation operating within and outside the State which reflects a loss with no income to be apportioned, an apportionment factor shall be calculated for the filing to be considered complete.

Corporations operating as a unitary business within and outside the State shall, for tax years beginning before December 31, 2021, generally use a three-factor formula of property, payroll, and sales to determine the part of the corporation’s Maryland modified income derived from or reasonably attributable to trade or business carried on in the State, as follows:

Corporations operating as unitary businesses within and outside the State shall, for a taxable year beginning after December 31, 2021, determine the part of the corporation’s Maryland modified income derived from or reasonably attributable to trade or business carried on in the State by using a single sales factor apportionment formula, by multiplying its Maryland modified income by 100 percent of the sales factor.

A worldwide headquartered company, as defined by Tax-General Article, §10-402(a), Annotated Code of Maryland, may elect to calculate its Maryland modified income derived from or reasonably attributable to trade or business carried on in the State using a three-factor apportionment fraction, the numerator of which is the sum of the property factor, the payroll factor, and twice the sales factor, and the denominator of which is four.

The three factors are described in §C(5)—(7) of this regulation.

The sales factor includes the amounts of income reported during the taxable year as gross receipts or sales, or both (less returns and allowances), dividends and interest, gross rents and royalties, capital gains, and certain other income as follows:

The property factor includes owned as well as rented tangible personal property used in the trade or business during the taxable year and shall be included in the numerator if the tangible personal property is located within this State. The following apply:

The payroll factor shall be the amount of compensation paid during the taxable year, as follows:

“Customers within this State” shall be determined as provided in this section.

Domicile.

Services Related to Real Property. If a person provides a service relating to construction or improvement to real property, then whether the customer is a customer within this State will be determined by the situs of the property.

Brokerage Services. Receipts derived from securities brokerages services allocable to this State are determined by multiplying the total dollar amount of sales of securities brokerage services by a fraction, the numerator of which is the receipts from securities brokerage services from customers domiciled in this State and the denominator of which is the receipts from securities brokerage services from all customers. Receipts from securities brokerage services include commissions on transactions, the spread earned on principal transactions in which the broker buys or sells from its account, total margin interest paid on behalf of brokerage accounts owned by the broker's customers, and fees and receipts of all kinds from the underwriting of securities. For principal transactions that are part of brokerage receipts, if the income from these transactions can be tied to, or associated with, an identifiable customer that provides the impetus for the transaction, the receipt shall be assigned to the domicile of that customer. If it is impossible to identify or associate a specific customer with a receipt, the receipt shall be excluded from both the numerator and the denominator of the receipts factor. If receipts from brokerage services can be associated with a particular customer, but it is impractical to associate the receipts with the address of the customer, the customer shall be presumed to have a domicile at the branch office that generates transactions for the customer.

Services to Regulated Investment Companies.

Broadcast and Print Media. All revenue, including advertising receipts, derived from print and broadcast media shall be included in the numerator of the sales factor based on a reasonable estimate of the Maryland component of the audience for the broadcaster or publisher. In the case of print media, audience shall be measured by circulation.

Processing or Similar Services to Business Customers. If a business enterprise provides processing or similar services to a customer having a location in more than one state, then the business enterprise's customers within this State are determined by the point of sale between the ultimate consumer and the business enterprise's customer.

A corporation engaged primarily in leasing or rental operations shall use an equally weighted two-factor formula of receipts and property, except that receipts from intangible items shall be excluded.

Corporations engaged primarily in certain types of transportation shall use a one-factor formula as described below to determine the amount of income allocable to this State:

If an apportionment formula does not fairly represent the extent of a corporation's activity in this State, the Comptroller may alter the formula or its components.

A corporation's share of partnership or joint venture receipts, property, and wages shall be included in the apportionment formula:

Separate accounting may be allowed only if:

In this section, the following terms have the meanings indicated:

Corporations engaged primarily in the airline industry shall use a three-factor formula of sales, property, and payroll to determine the amount of income allocable to this State.

Sales Factor.

Property Factor.

Payroll Factor.

The final apportionment factor is arrived at by averaging the sum of the separately computed sales, property, and payroll factors.

This regulation applies to:

This regulation applies to taxable years beginning after December 31, 1998.

Film.

“Release date” means the date on which a film is placed in service as follows:

“Rent” includes license fees for the exhibition or telecast of films.

“Tangible personal property”, whether owned or rented, includes but is not limited to sets, props, wardrobes, and other similar equipment or property.

“Subscriber” means the individual residence or other outlet which is the ultimate recipient of the transmission of a subscription television telecaster.

“Telecast” means the transmission of an electronic signal by radiowaves or microwaves or by wires, lines, coaxial cables, wave guides, or other tangible conduits of communication.

Each episode of a series of films produced for television shall constitute a separate film, notwithstanding that the series relates to the same principal subject and is produced during one or more television seasons.

A “film” is deemed to be tangible personal property.

In the case of rented studios, the net annual rental rate includes only the amount of the basic or flat rental charge by the studio for the use of a stage and other permanent equipment such as sound recording equipment, and similar equipment except that additional equipment rented from other sources or from the studio not covered in the basic or flat rental charge and used for 1 week or longer (even though rented on a day-to-day basis) are included. Lump-sum net rental payments for a period which encompasses more than single income year are assigned ratably over the rental period.

The value of films:

The value of a film is not included in the property factor until its release date.

Video cassettes and discs are included in the property factor at their inventory cost as shown in the taxpayer's books and records.

Denominator.

Numerator.

Denominator.

Numerator. Compensation of employees engaged in the production of a film on location is attributed to this State in the same ratio as the total Maryland receipts from the films, as determined in §G(1)—(3) of this regulation pertaining to the sales factor, bears to the total receipts everywhere. Compensation of all other employees is governed by Regulation .08C(5) of this chapter.

The numerator includes all gross receipts of the taxpayer from sources within this State including the following:

Under §G(1)(b) of this regulation, the audience is determined by rate card values published annually by market surveys or other industry publications, or, if none are available, by population data published by the U.S. Bureau of the Census.

Under §G(1)(c) of this regulation, if the number of subscribers cannot be determined accurately from records maintained by the taxpayer, then the ratio is determined on the basis of the applicable year’s statistics on subscribers published by market surveys or other industry publications, or, if none are available, by population data published by the U.S. Bureau of the Census for all states in which the telecaster has subscribers.

A company described in §A(1) of this regulation shall apportion its income as set forth in this regulation unless the company makes an election to be excluded from the requirements of this regulation.

A company doing business in Maryland on or before the effective date of this regulation that wishes to be excluded from the requirements of this regulation must make the election for exclusion on or before the due date, including an extended due date, of the company's original tax return for its first taxable year beginning on or after January 1, 1999.

A company that begins doing business in Maryland after the effective date of this regulation and that wishes to be excluded from the requirements of this regulation must make the election for exclusion on or before the due date, including an extended due date, of the company's first original income tax return required to be filed with the Comptroller.

An electing company shall make the election by attaching a statement to its tax return for the year for which the election is made. This election shall contain the following information:

A company is deemed to have made an election to apportion its income consistent with the principles set forth in this regulation if the company does not make an election as set forth in §H(1)—(4) of this regulation.

Revocation of Election.

An election made by one member of an affiliated group is not binding on any other member of the group. Each separate entity shall file its own election or revocation.

Manufacturing Corporation.

“North American Industrial Classification System (NAICS)” means the North American Industrial Classification System, United States Manual, United States Office of Management and Budget, 1997 Edition.

To be classified as a manufacturing corporation, the requisite activities of the NAICS code shall be performed directly by the entity using the one-factor formula. While it is not required that entities using the one-factor formula perform all elements of a vertically integrated manufacturing process, it is required that the activities leading to their classification as a manufacturing corporation be performed by the corporation, and not by related or unrelated entities.

Examples.

A manufacturing corporation is primarily engaged in activities that would be included in NAICS sector 11, 31, 32, or 33 if:

Sales, as determined under this section, include all of the corporation's gross receipts or sales, less returns and allowances, as reported on line 1c of the corporation's federal income tax return.

The sales factor of a company using a one-factor formula as required by this regulation is determined as follows:

NAICS Code.

For each taxable year beginning after December 31, 2005, but before January 1, 2011, a manufacturing corporation that has more than 25 employees and apportions its income under this regulation shall attach to its Maryland tax return a report containing the following information as of the last day of the taxable year:

In this regulation, the following terms have the meanings indicated.

Terms Defined.

For any taxable year beginning after December 31, 2020, but before January 1, 2024, a corporation may subtract up to $1,000 of donations made by the taxpayer during any taxable year to a qualified charitable entity from federal taxable income to determine Maryland modified income.

To claim the subtraction under §B(1) of this regulation, the taxpayer shall file with the income tax return on which the subtraction modification is taken a statement with the following information:

Payments accompanying returns shall be applied to the period covered by the return in the following manner:

All other payments shall be applied to the earliest delinquent tax year in the following manner:

To any debt collection intercept under COMAR 03.04.05 or 03.04.06; and

To the taxpayer of any remaining balance.

Against whom it has obtained a judgment in any court; or

Whose account has been referred to the Central Collection Unit in accordance with COMAR 17.01.01 by an educational institution to which the debtor owes a debt for unpaid tuition, fees, or education loans.

The amount of the debt;

The basis for the debt;

The debtor's right to request an investigation of the validity of the debt;

His right to contest any adverse determination in a hearing before the Central Collection Unit; and

His right to judicial appeal in accordance with the Administrative Procedure Act.

Appeal is not filed timely and no good cause for the delay is shown;

Issues raised in the appeal have been adjudicated by a court; or

Issues raised in an intercept appeal have been adjudicated on an appeal of the certification and no new law or evidence has been introduced.

Within 15 days of receipt of a timely request for a hearing, the debtor shall be notified of the hearing date. The Central Collection Unit shall designate the place for a hearing and shall notify the appellant of it at least 5 days in advance. If the appellant notifies the review officer that either the date or place designated is not convenient and requests a new date or place for the hearing and gives a valid reason for so requesting, the review officer may designate another date and place.

The debtor may waive an oral hearing date, in which case the hearing shall be conducted by a review of the record. A review of the record shall consist of a review of the relevant collection records and any written evidence submitted by the debtor.

At any hearing, the debtor has the right to have an attorney or other representative present to assist him.

The debtor has the right to present witnesses, documentary evidence, and oral argument, and to examine any documents presented by others as evidence at the hearing and to cross-examine any witness.

The debtor may not raise any issues in the hearing that have been previously litigated, whether in court or in an administrative hearing. The review officer shall make a record, containing the substance of what happened at the hearing, to be retained by the Central Collection Unit. This record, together with all papers filed in the proceedings and the review officer's findings and conclusions, and decisions, constitutes the exclusive record and shall be available for review by the debtor or representative at any reasonable time for a period of 2 years or until all litigation on the intercept is ended, whichever is greater.

The State agency which referred the debt to the Central Collection Unit may participate in the hearing.

A hearing request may be withdrawn by the debtor or representative at any time.

A hearing request is considered abandoned if the debtor and his representative fail to appear at the hearing and fail to notify the Central Collection Unit within 5 days of the original hearing date of a desire to pursue the appeal.

The review officer shall prepare a written summary of findings of fact and conclusions of law based exclusively on the record and shall make a decision upon those findings.

The date of the hearing is the date for calculating the amount of any debt considered in the decision.

If, in the case of a hearing on certification, the review officer finds that the debtor is incorrectly certified, the review officer shall instruct the Comptroller to delete the debtor's name from the certification list, or to reduce the amount of certified debt, whichever is appropriate.

In the case of a hearing on an intercept, if the review officer decides that no debt exists, the Central Collection Unit shall pay the full tax refund to the taxpayer within 5 days of the date of that determination. If the review officer determines that the tax refund remitted to the Central Collection Unit is in excess of the amount of the debt, the Central Collection Unit shall return the excess to the debtor within 30 days of the date of the decision.

“Distributable cash flow” has the meaning stated in Tax-General Article, §10-102.1(a)(2), Annotated Code of Maryland.

“Distributive share of partnership income” means the total distributive share of income (loss) items as reported on Schedule K of the federal partnership return, Form 1065, less interest from U.S. obligations.

“Member” has the meaning stated in Tax-General Article, §10-102.1(a)(4), Annotated Code of Maryland.

“Multistate pass-through entity” means a pass-through entity doing business within and outside the State.

“Nonresident entity” has the meaning stated in Tax-General Article, §10-102.1(a)(5), Annotated Code of Maryland.

“Nonresident member” includes, unless specifically designated elsewhere, a nonresident individual member and a nonresident entity member.

“Nonresident taxable income” means:

“Pass-through entity”, unless specifically designated elsewhere, has the meaning stated in Tax-General Article, §10-102.1(a)(7), Annotated Code of Maryland.

“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 derived from or reasonably attributable to the trade or business of the pass-through entity in this State.

“Pro rata share of S corporation income” means the total of the pro rata share of income (loss) items reported on Schedule K of Form 1120S, U.S. Income Tax Return for an S corporation, less interest from U.S. obligations.

A tax is imposed on a pass-through entity that:

A pass-through entity may elect to pay tax on the distributive or pro rata shares of all members of the pass-through entity under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland.

When a pass-through entity elects to pay tax on the distributive or pro rata shares of all members of the pass-through entity under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, the tax shall be treated as a tax on the pass-through entity itself.

A multistate pass-through entity that is a partnership (including a limited liability company taxed as a partnership and a business trust taxed as a partnership) shall allocate income to this State using:

A multistate pass-through entity that is an S corporation shall allocate income to this State using:

Calculation of Nonresident Tax for Pass-Through Entities Paying Tax with Respect to Nonresident Members' Distributive or Pro Rata Shares Under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland.

Calculation of Tax for Pass-Through Entities Electing to Pay Tax with Respect to All Members' Distributive or Pro Rata Shares Under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland.

The amount of tax imposed as computed under §E of this regulation;

For a pass-through entity paying the nonresident tax under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, the sum of the shares of all the nonresident members in the pass-through entity's distributable cash flow; or

For a pass-through entity paying tax on all members' distributive or pro rata shares under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, the sum of the shares of all members in the pass-through entity's distributable cash flow.

A member that is itself a pass-through entity shall comply with the provisions of this regulation with respect to any of its members.

A pass-through entity that has a member that is exempt from income tax under Tax-General Article, §10-104(2), Annotated Code of Maryland, is exempt from complying with the provisions of this regulation with respect to that member.

Information Return. A pass-through entity doing business in this State and paying tax on behalf of nonresident members under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, shall file an information return using Form 510. A pass-through entity paying tax on behalf of nonresident members under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, that is an S corporation may be required to file a corporate income tax return as provided in COMAR 03.04.03.03B(3).

Income Tax Return. A pass-through entity doing business in this State and electing to be taxed on all members' distributive or pro rata shares under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, shall file an income tax return using Form 511. An S corporation that pays the tax on all members' shares of income under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, may be required to file a corporate income tax return as provided in COMAR 03.04.03.03B(3).

Attachments.

Due Date. Except as provided in §A(5) of this regulation, the due date for filing a return is:

Extension of Time to File.

Requirement to File. A pass-through entity shall file quarterly estimated tax returns using Form 510D if the total tax imposed under Tax-General Article, §10-102.1(b), Annotated Code of Maryland, is reasonably expected to exceed $1,000 for the taxable year. At least 25 percent of the total estimated tax shall be remitted by each of the four installment dates set forth in §B(2) of this regulation.

Due Date.

Unpaid Tax.

Short Tax Period. For a short tax period, the total estimated tax for the taxable period shall be paid equally over the number of installment due dates occurring during the short tax year. However, estimated tax is not required to be remitted for a short period of less than 4 months.

Requirement to File.

Due Date. Except as provided in §C(3) of this regulation, the annual return, with payment of any tax due, shall be filed on or before the due date for the filing of the pass-through entity return as provided in §A(4) of this regulation.

Extension of Time to File. An extension of time to file an annual return shall be allowed for the same period of time allowed under §A(5) of this regulation, if:

Effect of Extension. An extension of time to file an annual return may not extend the time for payment of any tax due.

Tax required to be paid by the pass-through entity under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, is paid on behalf of the nonresident members.

Tax elected to be paid by the pass-through entity under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, is a tax imposed on the entity itself.

The tax attributable to a member's share of the taxable income that was paid by the pass-through entity shall be claimed by that member as a credit, allowed by Tax-General Article, §10-701.1, Annotated Code of Maryland, on:

For a pass-through entity that has a member that is a fiduciary, the credit allowed by Tax-General Article, §10-701.1, Annotated Code of Maryland, may be claimed by the beneficiary of that fiduciary in an amount in proportion to the distribution of income by the fiduciary to that beneficiary.

Overpayments of tax shown on the annual return of a pass-through entity that paid the tax on behalf of nonresidents under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, may not be:

Overpayments of tax shown on the annual return of a pass-through entity that elects to pay on all members' distributive or pro rata shares of income under Tax-General Article, §10-102.1(b)(2)(ii), Annotated Code of Maryland, may be:

Form. A pass-through entity may elect to use a:

Contents.

Banking institution.

“Billing address” means the location indicated in the books and records of the taxpayer on the first day of the taxable year, or on a later date in the taxable year when the customer relationship began, as the address where any notice, statement, or bill relating to a customer's account is mailed.

“Borrower or credit card holder located in this State” means a:

Commercial Domicile.

“Compensation” means wages, salaries, commissions, and any other form of remuneration paid to employees for personal services.

“Credit card” means a credit, debit, travel, or entertainment card.

“Credit card issuer's reimbursement fee” means the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit card has charged merchandise or services to the credit card.

“Employee” means, with respect to a particular taxpayer, an individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee of that taxpayer.

“Financial institution holding company” means a financial institution whose:

Gross Rents.

Loan.

“Loan secured by real property” means a loan in which 50 percent or more of the aggregate value of the collateral, when valued at fair market value as of the time the original loan was incurred, was real property.

“Merchant discount” means the fee or negotiated discount charged to a merchant by the taxpayer for the privilege of participating in a program by which a credit card is accepted in payment for merchandise or services sold to the card holder.

“Participation” means an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

Principal Base of Operations.

Real Property Owned.

“Regular place of business” means an office at which the taxpayer carries on its business in a regular and systematic manner and which is continuously maintained, occupied, and used by employees of the taxpayer.

“Syndication” means an extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

Tangible Personal Property Owned.

“Taxpayer” means a banking institution engaged in or conducting business in this State.

“Transportation property” means vehicles and vessels capable of moving under their own power, such as aircraft, trains, water vessels, and motor vehicles, as well as any equipment or containers attached to the property, such as rolling stock, barges, trailers, or similar items.

A banking institution operating as a unitary business within and outside the State shall, for tax years beginning before December 31, 2021, use a three-factor formula of property, payroll, and receipts to determine the part of the banking institution's Maryland modified income derived from or reasonably attributable to trade or business carried on in the State, as follows:

A banking institution operating as a unitary business within and outside the State shall, for a taxable year beginning after December 31, 2021, determine the part of the taxpayer's Maryland modified income derived from or reasonably attributable to trade or business carried on in the State by using a single receipts factor apportionment formula, by multiplying its Maryland modified income by 100 percent of the receipts factor.

A financial institution holding company shall allocate its interest income received from subsidiaries described in Regulation .02B(1)(a)(v)—(xi) of this chapter by use of the apportionment formula of the subsidiary that pays the interest.

A financial institution holding company shall apportion all other income to this State through application of this chapter.

Separate accounting;

The exclusion of any one or more of the factors;

The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this State; or

The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

Receipts from the lease or rental of real property owned by the taxpayer if the property is located within this State or receipts from the sublease of real property if the property is located within this State;

Receipts from the lease of tangible personal property, as described in §C of this regulation;

Interest from loans secured by real property, as described in §D of this regulation;

Interest and fees or penalties in the nature of interest from loans not secured by real property if the borrower is located in this State;

Net gains from the sale of loans, as described in §E of this regulation;

Interest and fees or penalties in the nature of interest from credit card receivables and receipts from fees charged to card holders, such as annual fees, if the billing address of the card holder is in this State;

Net gains, but not less than zero, from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to §B(6) of this regulation and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders;

Credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to §B(6) of this regulation and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders;

Receipts from merchant discount if the commercial domicile of the merchant is in this State, with the receipts computed net of any card holder charge backs, but not reduced by any interchange transaction fees or by any issuer's reimbursement fees paid to another for charges made by its card holders;

Loan servicing fees, as described in §F of this regulation;

Receipts from services not otherwise apportioned under this section if the service is performed:

Receipts from investment assets and activities and trading assets and activities, as described in §G of this regulation.

Except as described in §C(2) of this regulation receipts from the lease or rental of tangible personal property owned by the taxpayer is included in the receipts factor if the property is located within this State when it is first placed in service by the lessee.

Receipts from the lease or rental of transportation property owned by the taxpayer is included in the receipts factor to the extent that the property is used in this State. The extent an aircraft will be deemed to be used in this State and the amount of receipts that is to be included in the numerator of this State's receipts factor is determined by multiplying all the receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this State and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within this State cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

Interest and fees or penalties in the nature of interest from loans secured by real property are included in the receipts factor if the property is located within this State. If the property is located both within this State and one or more other states, the receipts described in this subsection are included in the numerator of the receipts factor if more than 50 percent of the fair market value of the real property is located within this State. If more than 50 percent of the fair market value of the real property is not located within any one state, then the receipts described in this subsection shall be included in the numerator of the receipts factor if the borrower is located in this State.

The determination of whether the real property securing a loan is located within this State shall be made as of the time the original agreement was made and subsequent substitutions of collateral shall be disregarded.

Net gains from the sale of loans includes income recorded under the coupon stripping rules of §1286 of the Internal Revenue Code.

The amount of net gains, but not less than zero, from the sale of loans secured by real property included in the numerator is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to §B(3) of this regulation and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

The amount of net gains, but not less than zero, from the sale of loans not secured by real property included in the numerator is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to §B(4) of this regulation and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

Loan servicing fees derived from loans secured by real property are determined by multiplying the fees by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to §B(3) of this regulation and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

Loan servicing fees derived from loans not secured by real property are determined by multiplying the fees by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to §B(4) of this regulation and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, the numerator of the receipts factor shall include those fees if the borrower is located in this State.

Interest, dividends, net gains, but not less than zero, and other income from investment assets and activities, and from trading assets and activities shall be included in the receipts factor. Investment assets and activities and trading assets and activities include, but are not limited to, investment securities, trading account assets, federal funds, securities purchased and sold under agreements to resell or repurchase, options, futures contracts, forward contracts, notional principal contracts such as swaps, equities, and foreign currency transactions. The receipts factor shall include the following amounts:

The numerator of the receipts factor includes interest, dividends, net gains, but not less than zero, and other income from investment assets and activities, and from trading assets and activities described in §G(1) of this regulation that are attributable to this State.

The amount of interest, dividends, net gains, but not less than zero, and other income from investment assets and activities in the investment account to be attributed to this State and included in the numerator is determined by multiplying all the income from those assets and activities by a fraction, the numerator of which is the gross income from those assets and activities which are properly assigned to a regular place of business of the taxpayer within this State and the denominator of which is the gross income from all those assets and activities.

The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this State and included in the numerator is determined by multiplying the amount described in §G(1)(a) of this regulation from those funds and securities by a fraction, the numerator of which is the gross income from those funds and securities which are properly assigned to a regular place of business of the taxpayer within this State and the denominator of which is the gross income from all those funds and securities.

The amount of interest, dividends, gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, but excluding amounts described in §G(3) and (4) of this regulation, attributable to this State and included in the numerator is determined by multiplying the amount described in §G(1)(b) of this regulation by a fraction, the numerator of which is the gross income from the trading assets and activities which are properly assigned to a regular place of business of the taxpayer within this State and the denominator of which is the gross income from all the assets and activities.

The taxpayer shall have the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside of this State by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside this State. Where the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one regular place of business and one regular place of business is in this State and one regular place of business is outside this State, that asset or activity shall be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, the policies and guidelines shall be presumed to be established at the commercial domicile of the taxpayer.

The value of real property and tangible personal property owned by the taxpayer is the original cost or other basis of the property for federal income tax purposes without regard to depletion, depreciation, or amortization.

Loans are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a loan is charged-off in whole or in part for federal income tax purposes, the portion of the loan charged off is not outstanding. A specifically allocated reserve established pursuant to regulatory or financial accounting guidelines which is treated as charged-off for federal income tax purposes shall be treated as charged-off for purposes of this section.

Credit card receivables are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a credit card receivable is charged-off in whole or in part for federal income tax purposes, the portion of the receivable charged-off is not outstanding.

The average value of real property and tangible personal property that the taxpayer has rented from another, and which is not treated as property owned by the taxpayer for federal income tax purposes, shall be determined annually by multiplying the gross rents payable during the taxable year by eight.

If the use of the general method described in this section results in inaccurate valuations of rented property, any other method which properly reflects the value may be adopted by the Comptroller or by the taxpayer when approved in writing by the Comptroller. Once approved, that method of valuation shall be used on all subsequent returns unless the taxpayer receives prior approval from the Comptroller or the Comptroller requires a different method of valuation.

Except as described in §F(2) of this regulation, real property and tangible personal property owned by or rented to the taxpayer is considered to be located within this State if it is physically located, situated, or used within this State.

Transportation property is included in the numerator of the property factor to the extent that the property is used in this State. The extent an aircraft will be deemed to be used in this State and the amount of value that is to be included in the numerator of this State's property factor is determined by multiplying the average value of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this State and the denominator of which is the total number of landings of the aircraft everywhere. If the extent of the use of any transportation property within this State cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

Regular Place of Business.

In the case of a loan which is assigned by the taxpayer to a place without this State which is not a regular place of business, it shall be presumed, subject to rebuttal by the taxpayer on a showing supported by the preponderance of evidence, that the preponderance of substantive contacts regarding the loan occurred within this State if, at the time the loan was made, the taxpayer's commercial domicile was within this State.

Determination of Preponderance of Substantive Contacts.

The employee's services are performed entirely within this State;

The employee's services are performed both within and without the State, but the service performed without the State is incidental to the employee's service within the State; or

The employee's services are performed both within and without this State, and:

“Long-term-care insurance” has the meaning stated in Insurance Article, §18-101(f), Annotated Code of Maryland.

“Employer” has the meaning stated in §3401(d) of the Internal Revenue Code.

“Employee” means an individual who is employed in this State.

$5,000; or

$100 multiplied by the number of employees covered by long-term-care insurance provided under the employee benefit package.

“Basic credit” means the research and development tax credit described in Regulation .02C(1) of this chapter.

“Business entity” means a sole proprietorship, partnership, corporation, or other entity doing business in the State.

“Credit year” means the year for which the credit is being claimed.

“Department” means the Department of Business and Economic Development.

“Growth credit” means the research and development tax credit described in Regulation .02C(2) of this chapter.

“Maryland base amount” means the base amount as defined in §41(c) of the Internal Revenue Code, that is attributable to Maryland, determined by:

“Maryland adjusted base amount” means the Maryland base amount modified for a period of less than 12 months.

“Maryland gross receipts” means gross receipts that are reasonably attributable to the conduct of a trade or business in the State, determined under COMAR 03.04.03.08.

“Maryland qualified research and development” means qualified research, as defined in §41(d) of the Internal Revenue Code and regulations thereunder, that is conducted in the State.

“Maryland qualified research and development expense” means qualified research expenses, as defined in §41(b) of the Internal Revenue Code and regulations thereunder, incurred for Maryland qualified research and development.

“Small business” means a for-profit corporation, limited liability company, partnership, or sole proprietorship with net book value assets totaling, at the beginning or the end of the taxable year for which Maryland qualified research and development expenses are incurred, as reported on the balance sheet, less than $5,000,000.

“Taxpayer” means an individual or a corporation required to pay an income tax or file an income tax return.

The percentage that the Maryland qualified research and development expense for the 4 taxable years immediately preceding the taxable year in which the expense is incurred is of the business entity's Maryland gross receipts for those years; or

For a business entity that has fewer than 4 but at least 1 taxable year, the percentage as determined under §A(1) of this regulation using the number of immediately preceding taxable years that the business entity has.

For a business entity with gross receipts in at least 1 of the immediately preceding 4 taxable years, the product of multiplying the Maryland base percentage by the average annual Maryland gross receipts of the business entity for the 4 taxable years immediately preceding the credit year; or

For a business entity with no Maryland gross receipts during any of the immediately preceding 4 taxable years, the Maryland base amount is zero.

The basic credit in the amount of 3 percent of the Maryland qualified research and development expenses, not exceeding the Maryland base amount for the business entity, paid or incurred by the business entity during the taxable year; and

The growth credit in the amount of 10 percent of the amount by which the Maryland qualified research and development expenses paid or incurred by the business entity during the taxable year exceed the Maryland base amount for the business entity.

The numerator of which is the number of days in the calendar year included in the partial or short tax year; and

The denominator of which is 365.

The actual Maryland qualified research and development expenses incurred during the partial tax year incurred during the calendar year; or

The total Maryland qualified research and development expenses incurred during the entire tax year multiplied by a fraction:

The basic credit in the amount of 3 percent of the Maryland qualified research and development expenses, not exceeding the Maryland adjusted base amount for the business entity, paid or incurred by the business entity during the taxable year; and

The growth credit in the amount of 10 percent of the amount by which the Maryland qualified research and development expenses paid or incurred by the business entity during the taxable year exceed the Maryland adjusted base amount for the business entity.

The business entity's name and address;

The business entity's federal identification number;

The beginning and ending dates of the business entity's fiscal year, or, if a partial year, then the fraction of a year for which the credit is being claimed;

The North American Industrial Classification System (NAICS) code number for the business entity;

The amount of the research and development expenses eligible for the federal research and development credit for the current and each of the previous 4 tax years and the corresponding average for the previous 4 tax years;

The amount of Maryland qualified research and development expenses for the current tax year, the previous 4 tax years, and the corresponding average for the previous 4 tax years;

The basic credit being applied for in the current tax year, before allocation and certification by the Department;

The growth credit being applied for in the current tax year;

The Maryland base percentage;

The Maryland base amount or Maryland adjusted base amount; and

Any other information required by the Department.

The numerator of which is the maximum specified under Regulation .04 of this chapter; and

The denominator of which is the total of all credits applied for by all applicants under Regulation .05 of this chapter in the calendar year.

The full amount of the excess is used;

For credits certified by the Department before July 1, 2005, the expiration of the 15th taxable year after the taxable year in which the Maryland qualified research and development expense was incurred; or

For credits certified by the Department after June 30, 2005, the expiration of the 7th taxable year after the taxable year in which the Maryland qualified research and development expense was incurred.

The numerator of which is the Maryland qualified research and development expenses incurred by the separate member; and

The denominator of which is the total Maryland qualified research and development expenses incurred by all members of the controlled group.

In a transaction involving an asset purchase, unused credits:

Unused credits may not be sold or purchased.

The numerator of which is the Maryland qualified research and development expenses incurred during the short taxable year; and

The denominator of which is the Maryland qualified research and development expenses incurred during the entire calendar year.

Requirements. A partnership, S Corporation, limited liability company, business trust, estate, or trust shall provide each of its partners, shareholders, members, or beneficiaries with an income tax statement.

Form and Contents of Statement.

Statement Attached to Return. A partner, shareholder, member, or beneficiary shall attach a copy of the statement to the income tax return on which the credit is claimed.

“Artist” means a qualifying residing artist as defined in Economic Development Article, §4-701(f), Annotated Code of Maryland.

“Artistic work” has the meaning stated in Economic Development Article, §4-701(b), Annotated Code of Maryland.

“District” means an arts and entertainment district as defined in Economic Development Article, §4-701(c), Annotated Code of Maryland.

“Subtraction” means the modification to federal adjusted gross income as set forth in Tax-General Article, §10-207(v), Annotated Code of Maryland.

“Clerk” means clerk of the circuit court for any county of the State or Baltimore City.

“Debt incurred in contemplation of sale” means a debt secured by a mortgage, deed of trust, or other instrument on the property being sold with an effective date of not earlier than 90 days before the date of sale.

“Department” means the Department of Assessments and Taxation.

“Installment sale” means any sale:

“Like-kind exchange” means an exchange of property within the provisions of §1031 of the Internal Revenue Code (26 U.S.C. §1031).

Net Proceeds.

“Nonresident entity” means an entity that:

“Principal residence” means a residence that is described in §121 of the Internal Revenue Code (26 U.S.C. §121).

“Real estate reporting person” has the meaning stated in §6045(e)(2) of the Internal Revenue Code (26 U.S.C. §6045(e)(2)).

“Resident” means an individual as defined in Tax-General Article, §10-101(k), Annotated Code of Maryland.

“Resident entity” means an entity that:

“Transferor” means:

Recorded with the clerk; or

Filed with the Department.

Payment is made to the clerk or Department in an amount equal to the applicable percentage of the total payment to a nonresident or nonresident entity, respectively, as stated in Tax-General Article, §10-912(c), Annotated Code of Maryland;

The transferor certifies under the penalties of perjury in the transfer document or an attached affidavit that the transferor is a resident or resident entity;

The transferor certifies under the penalties of perjury in the transfer document or an attached affidavit that the property being transferred is the transferor's principal residence as defined in Regulation .02 of this chapter;

The transferor presents to the clerk or the Department:

The transfer is:

The transferor is an agency or instrumentality of the United States;

The transferor is:

The property is transferred pursuant to a deed or other instrument of writing that includes a statement of consideration required by Tax-Property Article, §12-104, Annotated Code of Maryland, indicating that the consideration payable is zero.

File the Application for Certificate of Full or Partial Exemption with the Comptroller at least 21 days before the settlement date;

Indicate on the Application for Certificate of Full or Partial Exemption the reason or reasons the transfer qualifies for a full or partial exemption from the withholding tax; and

Include with the Application for Certificate of Full or Partial Exemption sufficient documentation to support the request.

The tax due has been paid in full to the Comptroller;

The transfer is to a corporation controlled by the transferor under §351 of the Internal Revenue Code (26 U.S.C. §351);

The transfer is pursuant to a tax-free reorganization as described in §361 of the Internal Revenue Code (26 U.S.C. §361);

The transfer is being made on an installment sale basis under §453 of the Internal Revenue Code (26 U.S.C. §453);

The transfer is by a tax-exempt entity in accordance with §501(a) of the Internal Revenue Code (26 U.S.C. §501(a)) involving no unrelated business taxable income under §12 of the Internal Revenue Code (26 U.S.C. §12);

The transfer is to a partnership in exchange for an interest in the partnership such that no gain or loss is recognized under §721 of the Internal Revenue Code (26 U.S.C. §721);

The transfer is by a partnership to a partner of the partnership in accordance with §731 of the Internal Revenue Code (26 U.S.C. §731);

The transfer is by a real estate investment trust under §857 of the Internal Revenue Code (26 U.S.C. §857);

The transfer is a like-kind exchange under §1031 of the Internal Revenue Code (26 U.S.C. §1031);

The transfer is occurring because of a condemnation and conversion into a similar property under §1033 of the Internal Revenue Code (26 U.S.C. §1033);

The transfer is between spouses, or incident to a divorce in accordance with §1041 of the Internal Revenue Code (26 U.S.C. §1041);

The transfer is by an S-corporation in accordance with §1368 of the Internal Revenue Code (26 U.S.C. §1368);

The transfer is to a disregarded entity, classified as such under 26 CFR §301.7701-3, that is solely owned by the transferor;

All or a portion of the gain from the transfer qualifies for the principal residence exclusion from gross income in accordance with §121 of the Internal Revenue Code (26 U.S.C. §121); or

The transfer is otherwise exempt as documented by the transferor.

Except as provided in §E(2) of this regulation, a like-kind exchange that qualifies under the provisions of §1031 of the Internal Revenue Code (26 U.S.C. §1031) and for which a Certificate of Full or Partial Exemption has been issued is not subject to the withholding requirements.

If at the time of settlement it is known that the property does not qualify as a like-kind exchange under the provisions of §1031 of the Internal Revenue Code (26 U.S.C. §1031) or the transferor will receive taxable boot, then notwithstanding the issuance of the Certificate of Full or Partial Exemption, Regulation .03B(1) of this chapter applies to:

Except as provided in §F(2) of this regulation, an installment sale for which a Certificate of Full or Partial Exemption has been issued is not subject to the withholding requirements.

Regulation .03B(1) of this chapter applies to that portion of the total payment that the transferor receives before, at, or within 60 days of settlement.

Withhold at settlement the tax required under Regulation .03B(1) of this chapter; and

Remit the tax to the clerk or to the Department in accordance with Regulation .06 of this chapter.

Copies A and B of the Return of Income Tax Withholding for Nonresident Sale of Real Property;

If issued by the Comptroller, the Certificate of Full or Partial Exemption; and

A separate check in the amount of the tax required to be withheld that is made payable to the clerk or to the Department.

The transferor of the property;

An agent of the transferor; or

The real estate reporting person.

Pay over to the Comptroller the amount of tax collected;

Submit to the Comptroller:

A member or a shareholder of a pass-through entity may file an Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents if the applicant provides sufficient documentation of their status as a member of the pass-through entity and:

A pass-through entity or partner of a pass-through entity may not file an Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents.

Copy C of the Return of Income Tax Withholding for Nonresident Sale of Real Property;

A copy of the HUD 1 Settlement Statement; and

Any other document as required by the Comptroller.

“Commercial domicile” means the principal place from which the trade or business of the taxpayer is directed or managed.

“Corporate group” has the meaning stated in Tax-General Article, §10-804.1(a)(1) and (2), Annotated Code of Maryland.

“Finnigan” means a method of apportioning taxable income of a corporate group whereby the numerator consists of the Maryland receipts, property, and payroll of all members of the corporate group regardless of whether the members have nexus with Maryland and are required to file a Maryland corporate income tax return.

“Joyce” means a method of apportioning taxable income of a corporate group whereby the numerator consists of the Maryland receipts, property and payroll of all members of the group having nexus in Maryland and required to file a Maryland corporate income tax return.

“Nonoperational” means income of a corporation that is not earned as a part of the corporation's unitary business.

“Unitary business” means a business in which the activities of the corporations comprising the business, whether related as a parent and subsidiary or as affiliated corporations related through common ownership, are economically interdependent as demonstrated by the following factors:

“Water's edge” means a method for preparing a combined income tax report that includes the income and activities of all members of a corporate group that are in a unitary business and are:

A pro forma water's edge combined corporate income tax report, including taxable income of the corporate group, eliminations to account for intercompany transactions within the corporate group, and apportionment factors computed under both Joyce and Finnigan methods of apportionment;

A report that reflects the dollar value of all property that is shipped from an office, store, warehouse, factory, or other place of storage in this State where the purchaser is the United States government;

A report that reflects the dollar value of all property that is shipped from an office, store, warehouse, factory, or other place of storage in this State where the seller is not taxable in the state in which the purchaser takes possession; and

A report that reflects the amount and source of nonoperational income of each member of the corporate group whose commercial domicile is in this State.

The report to be submitted for a taxable year beginning after December 31, 2005 and before January 1, 2007 shall be submitted on or before November 29, 2008; and

The reports to be submitted for taxable years beginning after December 31, 2006 and before January 1, 2011 shall be submitted on or before November 29, 2008 or 7 months after the original due date of the corporation's Maryland tax return for the corresponding taxable year, whichever is later.

Subject to §A(3) of this regulation, if a corporate group fails to file the reports required under this chapter, the Comptroller shall assess the penalties set forth in this section.

The penalties to be assessed are:

The Comptroller may, for any reason, issue an order abating or decreasing the penalty established under this section.

If the Comptroller determines that a report filed under this chapter has not been filed accurately, the Comptroller shall provide written notice to the corporate group of the determination.

The notice from the Comptroller shall identify the parts of the report determined to be inaccurate.

The notice from the Comptroller shall inform the corporate group that it has 30 days from the date of the Comptroller's notice to file an accurate report.

If following receipt of notice from the Comptroller of an inaccurate filing, the corporate group does not file an accurate report on or before the date specified in the Comptroller's notice, then the corporate group shall:

For purposes of assessing the penalties under §B of this regulation, the first violation will be deemed to have occurred on the first day following the due date for filing of an accurate report as specified in the notice from the Comptroller issued pursuant to §B(1) of this regulation.

Aerospace, Electronics, or Defense Contract Tax Credit;

Apprentice Employee Tax Credit;

Biotechnology Investment Incentive Tax Credit;

Businesses That Create New Jobs Tax Credit;

Clean Energy Incentive Tax Credit;

Community Investment Tax Credit;

Commuter Tax Credit;

Cybersecurity Incentive Tax Credit;

Electric Vehicle Recharging Equipment Tax Credit;

Employer-Provided Long-Term Care Insurance Tax Credit;

Employment Opportunity Tax Credit;

Endow Maryland Tax Credit;

Endowments for Historically Black Colleges and Universities Tax Credit;

Enterprise Zone Tax Credit;

Film Production Activity Tax Credit;

Green Building Tax Credit;

Health Enterprise Zone Hiring Credit;

Heritage Structure Rehabilitation Tax Credit;

Job Creation Tax Credit;

Maryland Disability Employment Tax Credit;

Maryland Employer Security Clearance Costs Tax Credit;

Maryland-Mined Coal Tax Credit;

One Maryland Economic Development Tax Credit;

Oyster Shell Recycling Tax Credit;

Qualified Vehicle Tax Credit;

Research and Development Tax Credit; and

Wineries and Vineyards Tax Credit.