Withholding Required. 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 personal exemption claimed by a resident or a nonresident on Form MW 507 or other approved form; and For organizations that are exempt from taxation under §501(c)(3) or (4) of the Internal Revenue Code, the credit against the amount of tax withheld and required to be paid to the Comptroller under Tax-General Article, §§10-704.7, 10-704.10, and 10-715, Annotated Code of Maryland. 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. Withholding Exemption Certificate. 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: The employee's salary, wages, or compensation is subject to withholding; or The employee satisfies the conditions for tax exempt status as set forth in §C(2), (3), or (4) of this regulation, and the employee wants to claim exemption from the withholding taxes. 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. An employee filing a Form MW 507 with the employer shall supply the following information: Name; Home address; Social Security number; Number of exemptions and allowances claimed; Signature under oath; and Date. In addition to the general information provided by §B(3)(a) of this regulation, an employee claiming exemption from withholding under §C(2) shall certify under oath that he or she is not domiciled and does not maintain a place of abode in the State and shall list his or her permanent address. In addition to the general information required by §§B(3)(a) and C(3) or (4), an employee claiming exemption from withholding under §C(3) or (4) shall file Form MW 507 annually with the employer not later than: The 15th day of February of the following year if the employee's income tax liability is determined on a calendar year basis; or The 15th day of the second calendar month following the last day of the employee's tax year if §B(3)(c)(i) does not apply. 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: The withholding exemption certificate does not contain the information required in §B(3) of this regulation. The withholding exemption certificate contains false or fraudulent information; however, claiming a lesser number of exemptions than allowed may not be considered false or fraudulent. There is any alteration of, or unauthorized addition to, the withholding exemption certificate. An alteration is taking out any language by which the employee certifies the correctness of the certificate. An unauthorized addition is any writing on the certificate other than the entries required. The Comptroller notifies the employer in writing that the withholding exemption certificate is invalid. The withholding exemption certificate claiming exemption from withholding under §C(3) of this regulation has not been renewed annually as required under §B(3)(c) of this regulation. The withholding exemption certificate claiming exemption from withholding under §C(4) of this regulation is not accompanied by the Comptroller-required documentation showing your spousal status under the Servicemembers Civil Relief Act, as amended by the Military Spouses Residency Relief Act, or has not been renewed annually as required under §B(3)(c) of this regulation. 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. An employer shall submit to the Comptroller a copy of a withholding exemption certificate which is received from an employee if: The total number of withholding exemptions claimed on the certificate exceeds 10; The employee certifies that he or she is exempt from withholding under the Servicemembers Civil Relief Act, as amended by the Military Spouses Residency Relief Act; The employee certifies that he or she is exempt from withholding because he or she had no income tax liability for the preceding year, expects to incur no liability in the current year, and the wages are expected to exceed $200 a week; The employee certifies that he or she is a bona fide domiciliary of a state which has a written reciprocal agreement with Maryland exempting salary, wages, or other compensation from taxation; or The employer has reason to believe the certificate is incorrect. An employer shall submit a copy of any currently effective withholding exemption certificate (or make the original certificate available for inspection) upon request of the Comptroller. If the Comptroller finds that a withholding exemption certificate contains any materially incorrect statement, or the employee fails to furnish verification when requested to do so, the Comptroller shall notify the employer in writing that the certificate is invalid. Thereafter, the employer shall compute the amount of withholding on the basis of a single person claiming only the employee's personal exemption until the Comptroller advises the employer by written notice to withhold on the basis of any new certificate filed by the employee and revokes the prior written notice. 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. Withholding Not Required. Withholding of Maryland income tax is not required with respect to compensation, salary, or wages paid for personal services rendered or performed by: 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: Incurred no income tax liability for the preceding taxable year; and Expects to incur no income tax liability for the current taxable year; A nonresident individual subject to the Servicemembers Civil Relief Act, as amended by the Military Spouses Residency Relief Act: Whose spouse is a member of the armed forces present in Maryland in compliance with military orders; Who is present in Maryland solely to be with the military spouse; Whose domicile is in another state; and Out-of-state employees as defined under Public Safety Article, §14-219, Annotated Code of Maryland. Time and Place for Filing Returns. 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: A monthly basis; A quarterly basis; An annual basis; or A periodic basis. 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. General. Except as provided in §D(5)(b) of this regulation, when the aggregate amount required to be deducted and withheld by the employer or payor for any annual period can reasonably be expected to be less than $250, the employer or payor shall: File the return; and Pay the tax annually on or before the last day of January immediately following the tax year. Professional Sports Teams. Each non-Maryland-based professional sports team that has not elected to file on a monthly or quarterly basis shall: File the return; and Pay the tax annually on or before the last day of January immediately following the tax year. Periodic Basis. For purposes of §D(6) of this regulation, the term “payroll” means the period for which a payment of wages is ordinarily made by the employer to its employees. Every employer or payor who, in the preceding calendar year, was required to withhold at least $15,000 in Maryland withholding tax shall file withholding returns on a periodic schedule so that a return is filed within 3 business days following each payroll that causes the total accumulated tax withheld to equal or exceed $700. If an employer or payor begins to file on a periodic schedule, it shall file a return at least once every month even if no wages are withheld during the month unless the employer: Gives written notice that it no longer has employees; or Paid less than $15,000 in Maryland income tax during the preceding calendar year. Waiver of Periodic Basis Filing Requirement. If an employer or payor submits to the Comptroller written documentation from the Internal Revenue Service showing that it is allowed to make federal withholding tax deposits on a monthly schedule, then the Comptroller may grant a waiver from the requirement in §D(6)(b) of this regulation. The waiver shall allow the employer or payor to file the Maryland withholding tax return and pay the tax on a monthly basis for the remainder of the calendar year. An employer or payor may annually apply to the Comptroller for a renewal of a waiver granted under §D(6)(d)(i) of this regulation, if the employer or payor remains eligible to make federal withholding tax deposits on a monthly schedule. 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. Year-end Reconciliation Return of Monthly, Quarterly, Annual, and Periodic Returns and Employer Withholding Returns. 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: MW 508 — Employer's Annual Withholding Reconciliation Report. If the employer is not required under §E(2)(c) of this regulation to provide W-2 information on magnetic media, then the employer shall file Copy 1 of Federal Form W-2 for each employee. An employer is required to provide W-2 information on magnetic media, or other machine-readable or electronic format approved by the Comptroller, if the total number of W-2 statements equals or exceeds: 25; or The federal threshold for filing on magnetic media, if the federal threshold is lower than 25. If the employer is required to provide W-2 information using magnetic media, then the employer shall file with the Comptroller the withholding and tax information on magnetic tape, or if approved by the Comptroller, other magnetic media permitted under IRS regulations as follows: Magnetic tape or other approved magnetic media used in reporting withholding and tax information shall conform to the Social Security Administration reporting requirements for the filing of W-2 information as specified in regulations of the Internal Revenue Service as amended from time to time and shall contain Maryland income tax and withholding data; Employers using magnetic tape or other approved magnetic media may submit to the Comptroller a copy of the data submitted to the Social Security Administration if Maryland information is included or may submit magnetic media containing only income tax and withholding data of employees subject to the Maryland Income Tax Law. Waiver of Magnetic Media Filing Requirement. An employer or payor may annually apply, in writing, at least 45 days before the due date, to the Comptroller for a waiver from the requirement under §E(2)(c) of this regulation. The Comptroller may grant a waiver if the employer or payor can show that the Internal Revenue Service has granted the employer or payor a waiver from filing information returns electronically by submitting a copy of the federal waiver to the Comptroller, or that the requirement would cause the employer or payor undue hardship. The principal factor in determining undue hardship will be the amount, if any, by which the cost of filing on magnetic media in accordance with §E(2)(d) of this regulation exceeds the cost of filing the returns on other media. Any 1099 series Federal Form, if the employer or payor is required under federal law to file the form and Maryland State withholding tax is greater than $10. Withholding Agent's Liability. 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: Officer of the corporation who exercises direct control over the fiscal management of the corporation; and Agent of the corporation who, in the agent's capacity as such, is under a duty to withhold the tax and transmit it to the Comptroller. 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. Other Payments Subject to Withholding. 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. If a payment to a payee is a designated distribution that is an “eligible rollover distribution” within the meaning of §3405(c) of the Internal Revenue Code, which includes any part that is not rolled over directly to another qualified plan and which is subject to federal mandatory withholding, then it is subject to State withholding. The withholding rate as applied to the payment is 7.75 percent. The payor shall withhold tax on each eligible rollover distribution and remit the tax to the Comptroller with a withholding return, Form MW 506. The payor shall file an annual reconciliation report, Form MW 508, with the Comptroller as set forth in §D of this regulation. Resident and Nonresident Individuals Other Than Farmers. 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. Except as otherwise provided in this regulation, the Comptroller shall assess interest and penalty on the underpayment of estimated tax based on the unpaid tax from the due date of the tax to the date on which it is paid. The unpaid tax is the lesser of: 90 percent of the tax required to be shown on the return for the current taxable year; or 110 percent of the tax paid for the prior taxable year, reduced by any credit allowed under Tax-General Article, §§10-703 and 10-703.2, Annotated Code of Maryland. The Comptroller may not assess interest or penalty if: The underpayment is less than $500; or At least 90 percent of the individual's taxable income is taxable by another state, and the underpayment is of the county income tax only. Farmers and Fishermen. An individual whose estimated gross income from farming (including oyster farming) and fishing is at least 2/3 of the total estimated gross income from all sources for the taxable year, instead of the dates set forth in §A of this regulation, may file a declaration of estimated tax on Form 502-D or 502-DEP at any time on or before January 15 of the succeeding taxable year, but if this individual files a return for the taxable year for which the declaration is required and pays in full the tax computed on the return as payable on or before March 1 of the succeeding taxable year, then the return shall be considered as the declaration, or if the tax shown on the return is greater than the estimated tax shown on a declaration previously made, or in the last amendment of the declaration, the return shall be considered as an amendment of the declaration to be filed on or before January 15 of the succeeding taxable year. The Comptroller or his authorized delegate may abate any assessment, or unpaid portion thereof, if the assessment is in excess of the correct tax liability, if the assessment is made after the expiration of the period of limitation applicable to it, or if the assessment has been erroneously or illegally made. The Comptroller or his authorized delegate may abate amounts, the collection of which is not warranted because of the administration and collection costs. Once a taxpayer has become liable for the filing of withholding tax returns, the taxpayer shall continue to file returns until the Comptroller is notified that the taxpayer no longer has employees or is no longer liable to file returns. If a return required to be filed is not filed by its due date, after the time provided under Tax-General Article, §13-303, Annotated Code of Maryland, has elapsed, the Comptroller may estimate the amount of tax due from any information available and levy an assessment for this amount, together with applicable penalty, interest, and delinquent fees. A taxpayer may appeal an assessment by applying for a hearing as provided in COMAR 03.01.01.04. Tax-General Article, §§2-103, 10-822, and 10-911, Annotated Code of Maryland Effective date: Regulation .01 effective August 4, 1970; amended effective April 7, 1978 (5:7 Md. R. 520) Regulation .01A amended effective November 30, 1979 (6:24 Md. R. 1918); October 3, 1980 (7:20 Md. R. 1876); January 9, 1989 (15:27 Md. R. 3126); October 12, 1992 (19:20 Md. R. 1813); December 28, 1998 (25:26 Md. R. 1918); December 22, 2003 (30:25 Md. R. 1844); October 9, 2006 (33:20 Md. R. 1612); February 9, 2009 (36:3 Md. R. 207); July 8, 2013 (40:13 Md. R. 1073) Regulation .01B amended effective November 30, 1979 (6:24 Md. R. 1918); October 3, 1980 (7:20 Md. R. 1876); September 12, 1983 (10:18 Md. R. 1606); October 3, 1988 (15:20 Md. R. 2333); January 9, 1989 (15:27 Md. R. 3126); June 26, 1989 (16:12 Md. R. 1332); August 20, 1990 (17:16 Md. R. 1989); October 12, 1992 (19:20 Md. R. 1813); January 14, 1999 (26:1 Md. R. 21); December 22, 2003 (30:25 Md. R. 1844); October 9, 2006 (33:20 Md. R. 1612); July 8, 2013 (40:13 Md. R. 1073) Regulation .01B, C amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .01B, E amended effective April 30, 2012 (39:8 Md. R. 533) Regulation .01C amended effective October 3, 1980 (7:20 Md. R. 1876); January 9, 1989 (15:27 Md. R. 3126); October 12, 1992 (19:20 Md. R. 1813); March 31, 2014 (41:6 Md. R. 377) Regulation .01D amended effective November 30, 1979 (6:24 Md. R. 1918); May 6, 1985 (12:9 Md. R. 808); December 1, 1986 (13:24 Md. R. 2557); October 3, 1988 (15:20 Md. R. 2333); October 12, 1992 (19:20 Md. R. 1813); January 14, 1999 (26:1 Md. R. 21); December 22, 2003 (30:25 Md. R. 1844); October 9, 2006 (33:20 Md. R. 1612); October 22, 2007 (34:21 Md. R. 1913) Regulation .01E amended effective November 30, 1979 (6:24 Md. R. 1918); October 3, 1988 (7:20 Md. R. 1876); May 6, 1985 (12:9 Md. R. 808); August 20, 1990 (17:16 Md. R. 1989); October 12, 1992 (19:20 Md. R. 1813); December 22, 2003 (30:25 Md. R. 1844); October 9, 2006 (33:20 Md. R. 1612); March 27, 2017 (44:6 Md. R. 324); May 2, 2022 (49:9 Md. R. 529) Regulation .01F amended effective October 3, 1988 (15:20 Md. R. 2333); January 9, 1989 (15:27 Md. R. 3126); December 22, 2003 (30:25 Md. R. 1844); May 2, 2022 (49:9 Md. R. 529) Regulation .01G adopted effective October 9, 2006 (33:20 Md. R. 1612) Regulation .01G amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .02 effective August 4, 1970 Regulation .02A amended effective November 30, 1979 (6:24 Md. R. 1918); May 6, 1985 (12:9 Md. R. 808); January 9, 1989 (15:27 Md. R. 3126); August 20, 1990 (17:16 Md. R. 1989); November 20, 1994 (21:23 Md. R. 1931); January 14, 1999 (26:1 Md. R. 21); December 22, 2003 (30:25 Md. R. 1844); May 2, 2022 (49:9 Md. R. 529) Regulation .02B amended effective November 30, 1979 (6:24 Md. R. 1918); December 22, 2003 (30:25 Md. R. 1844); October 9, 2006 (33:20 Md. R. 1612) Regulation .02C amended effective November 30, 1979 (6:24 Md. R. 1918); October 3, 1988 (15:20 Md. R. 2333) Regulation .02C repealed effective January 9, 1989 (15:27 Md. R. 3126) Regulation .02D amended effective May 6, 1985 (12:9 Md. R. 808); October 3, 1988 (15:20 Md. R. 2333) Regulation .02D repealed effective January 9, 1989 (15:27 Md. R. 3126) Regulation .03 effective January 12, 1968; amended effective November 30, 1979 (6:24 Md. R. 1918); May 6, 1985 (12:9 Md. R. 808) Regulation .03E amended effective August 11, 1978 (5:16 Md. R. 1253) Regulation .03E—G amended as an emergency provision effective January 1, 1978 (4:27 Md. R. 2093); adopted permanently effective April 7, 1978 (5:7 Md. R. 520) Regulation .03 repealed effective March 6, 1989 (16:4 Md. R. 494) Regulation .04 effective July 24, 1969 Regulation .04C amended effective November 30, 1979 (6:24 Md. R. 1918); May 6, 1985 (12:9 Md. R. 808) Regulation .04 repealed effective March 6, 1989 (16:4 Md. R. 494) Regulation .05 effective July 24, 1969 Regulation .05 amended effective August 11, 1978 (5:16 Md. R. 1253); May 6, 1985 (12:9 Md. R. 808) Regulation .05 repealed effective March 6, 1989 (16:4 Md. R. 494) Regulation .06 effective October 17, 1968 Regulation .06 repealed effective March 6, 1989 (16:4 Md. R. 494) Regulation .07 effective July 24, 1969; repealed effective November 30, 1979 (6:24 Md. R. 1918) Regulation .07 adopted effective August 15, 1983 (10:16 Md. R. 1450) Regulation .07 repealed effective March 6, 1989 (16:4 Md. R. 494) Regulation .08 adopted effective April 7, 1978 (5:7 Md. R. 520) Regulation .09 adopted effective May 24, 1982 (9:10 Md. R. 1018) Regulation .09 repealed effective August 6, 1990 (17:15 Md. R. 1853) Regulation .10 adopted effective May 24, 1982 (9:10 Md. R. 1018) Regulation .10A amended effective January 9, 1989 (15:27 Md. R. 3126) Regulation .10 repealed effective August 6, 1990 (17:15 Md. R. 1853) Regulation .11 adopted effective December 29, 1986 (13:26 Md. R. 2806) Regulation .11 amended effective January 14, 1999 (26:1 Md. R. 21) Regulation .11B amended effective August 20, 1990 (17:16 Md. R. 1989) Annotations: COMAR 03.04.01.03E cited in Comptroller v. Shell Oil Co., 65 Md. App. 252 (1985) COMAR 03.04.01.03E cited in Ward Europa v. Comptroller In this chapter, the following terms have the meanings indicated. Terms Defined. “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: A shareholder of an S Corporation; A general or limited partner of a partnership, limited partnership, or limited liability partnership; A member of a limited liability company as defined under Corporations and Associations Article, Title 4A, Annotated Code of Maryland, if the limited liability company is taxable as a partnership under §761 of the Internal Revenue Code; or A beneficiary of a business trust. “Nonresident” means an individual who is not a resident of this State. “Pass-through entity” means: An S Corporation; A partnership; A limited liability company as defined under Corporations and Associations Article, Title 4A, Annotated Code of Maryland, if the limited liability company is taxable as a partnership under §761 of the Internal Revenue Code; or A business trust that is not taxed as a corporation under this title. Resident. “Resident” means an individual as defined in Tax-General Article, §10-101(k), Annotated Code of Maryland. “Resident” includes an individual who: For more than 6 months of the taxable year maintains a place of abode in this State; and Spends, in the aggregate, 183 days or more within this State during the taxable year. Except as otherwise provided in this regulation, each resident of this State shall use the same filing status: As used to file their federal income tax return; or As if the individual had been required to file a federal income tax return. An individual who is single and may be claimed as a dependent on another taxpayer's return shall use the filing status “dependent taxpayer”. A married couple who files a joint federal income tax return may file separate State income tax returns if: 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 individual who maintains a place of abode in this State for more than 6 months of the taxable year, and is not domiciled in this State, is considered a nonresident if the individual is: 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. Except as otherwise provided in this regulation, each nonresident individual required to file a State income tax return shall: 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. A married couple who files a joint federal income tax return may file separate State income tax returns if: 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 Dependent. “Dependent taxpayer” filing status shall be used by each individual who is: Single; Claimed as a dependent by another taxpayer; and Required to file a State income tax return. Who May File. 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. Nonresident Qualifications. Nonresident members may not be included in a composite return unless: 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: The top marginal State income tax rate for individuals under Tax-General Article, §10-105(a), Annotated Code of Maryland; and The rate of tax imposed under Tax-General Article, §10-106.1, Annotated Code of Maryland; They agree that the pass-through entity is acting as their agent for the following purposes: Filing an income tax return on their behalf; Receipt of any refund; and Payment of any tax due; 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. Requirements for Filing. 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 top marginal State income tax rate for individuals under Tax-General Article, §10-105(a), Annotated Code of Maryland; and The rate of tax imposed under Tax-General Article, §10-106.1, Annotated Code of Maryland. The composite return shall contain a schedule which includes: A statement showing the percentage of stock ownership or shares in the pass-through entity of each nonresident member; The total income of the pass-through entity and the amount attributable to Maryland sources; The name, address, and Social Security number or federal identification number of each nonresident member; The filing status of each nonresident member; The distributive income allocable to Maryland for each nonresident member; The allowable exemptions for each nonresident member, which equal the total of allowable exemptions for a resident multiplied by a fraction: The numerator of which is the nonresident taxable income as defined in COMAR 03.04.07.01; and The denominator of which is the distributive or pro rata share of pass-through entity income as defined in COMAR 03.04.07.01B(2) and (9); The amount of the standard deduction of each nonresident member which equals the maximum standard deduction allowed a resident having the same filing status multiplied by a fraction: The numerator of which is the nonresident taxable income as defined in COMAR 03.04.07.01; and The denominator of which is the distributive or pro rata share of the pass-through entity income as defined in COMAR 03.04.07.01B(2) and (9); The taxable income of each nonresident member; The income tax liability of each nonresident member using the top marginal State income tax rate for individuals under Tax-General Article, §10-105(a), Annotated Code of Maryland; The additional tax liability of each nonresident member using the tax rate under Tax-General Article, §10-106.1, Annotated Code of Maryland; The amount of taxes paid on behalf of the nonresident member; The balance of tax due which shall be paid in full with the filing of the composite tax return; and The amount of any refund. Credit for Taxes Paid Other States. Credit for taxes paid other states is not permitted on the composite return. Signature. Partnership. A general partner shall sign the composite return. S Corporation. The president or other authorized officer of the S corporation shall sign the composite return. Limited Liability Company. An authorized member of the limited liability company shall sign the composite return. 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. Income of a nonresident for personal services rendered partly within and partly without this State shall be determined as follows: Commissions of a traveling salesman or agent which depend directly on sales made are allocated outside this State if the: Sales are outside this State, or Merchandise is delivered to points outside this State; 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. Nonbusiness income derived from interest, dividends, and annuities is allocable to the nonresident's state of domicile and not to this State. Income from a business, trade, profession, or occupation carried on partly within and partly outside this State shall be determined by separate accounting when practicable. If separate accounting is not practicable, income allocable outside this State shall be determined by: Percentage allocation which is: The average value of tangible business property outside this State over the average value of all tangible business property multiplied by 100, Business income outside this State over total business income multiplied by 100, The average of the percentages determined in §C(1)(a) and (b) of this regulation, and The average percentage arrived at in §C(1)(c) of this regulation applied to total business income to arrive at income allocable outside this State; Apportionment of sales as described in COMAR 03.04.03.08; or A method or methods subject to approval by the Comptroller. The Maryland adjusted gross income of a nonresident individual is the individual's federal adjusted gross income for the taxable year as determined under the Internal Revenue Code with the adjustments described in §§B and C of this regulation. Additions to Federal Adjusted Gross Income shall be: 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: Included in computing federal adjusted gross income; and Not attributable to sources within this State. Subtractions from Federal Adjusted Gross Income. To the extent included in computing federal adjusted gross income, the following are subtracted from the federal adjusted gross income of a nonresident individual to determine Maryland adjusted gross income: Income derived from: Real or tangible personal property located outside this State; Services performed outside this State; A business, occupation, profession, or trade that is carried on wholly outside this State; That part of a business, occupation, profession, or trade carried on by the individual both within and without this State that is attributable to the business, occupation, profession, or trade carried on outside this State; A pass-through entity that is equal to the member's distributive or pro rata share attributable to the business carried on outside this State; Annuities, pensions, state and local income tax refunds, interest, dividends, or other intangible property except if from: Maryland State lottery prizes or other gambling winnings derived from this State; or A business, occupation, profession, or trade carried on by the individual in this State; Distributions, to a beneficiary, of accumulated income on which a fiduciary has paid Maryland income tax; and Salary, wages, or other compensation received as: An active member of the armed forces; A midshipman of the Naval Academy at 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; Amounts derived from: Adoption expenses as provided for under Tax-General Article, §10-208(b); Blindness-related expenses as provided for under Tax-General Article, §10-208(c); Enhanced agricultural management equipment expenses as provided for under Tax-General Article, §10-208(d), to the extent that the expenses are incurred for conservation of land located in this State; Dependent care and household expenses as provided for under Tax-General Article, §10-208(e), to the extent the expenses are attributable to income received from services performed or business carried on within this State; Value of fringe benefits attributable to an employer-provided police or fire department vehicle as provided for under Tax-General Article, §10-207(d); Volunteer travel expenses as provided for under Tax-General Article, §10-208(j); Reforestation or timber stand expenses as provided for under Tax-General Article, §10-208(i), to the extent incurred for land located in this State; Wage expenses for targeted jobs as provided for under Tax-General Article, §10-208(k), to the extent that the wages are paid for services performed in Maryland; The amount by which the cost difference between a conventional on-site sewage disposal system and a system that utilizes nitrogen removal technology exceeds the amount of assistance the individual receives from the Department of the Environment under the Environment Article, §9-1108, Annotated Code of Maryland; and The value of: Donated artwork to the extent provided for under Tax-General Article, §10-208(f); and Donated farm products as provided for under Tax-General Article, §10-208(g), to the extent that the products are donated to a gleaning cooperative located in this State. A net operating loss generated when an individual is not subject to Maryland income tax law may not be allowed as a deduction to offset the Maryland income from any year when that individual is subject to Maryland income tax law. Whether or not a federal return is filed a nonresident may claim the personal and dependent exemptions provided for under Tax-General Article, §10-219, Annotated Code of Maryland. A nonresident individual may use the standard deduction as provided for under Tax-General Article, §10-219, Annotated Code of Maryland, or itemize deductions as provided for under Tax-General Article, §§10-218 and 10-219, Annotated Code of Maryland. Standard Deduction. 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: The numerator of which is Maryland adjusted gross income; and The denominator of which is federal adjusted gross income. Itemized Deductions. 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: In the amount computed by multiplying federal itemized deductions, reduced by the amount claimed as taxes on income paid to a state or political subdivision of a state, by a fraction: The numerator of which is Maryland adjusted gross income, and The denominator of which is federal adjusted gross income; or Actual itemized deductions verifiable by the individual as paid in Maryland. The Maryland taxable income of a nonresident individual is the individual's Maryland adjusted gross income less the: Exemptions allowed a nonresident under Regulation .07 of this chapter; and Deductions allowed a nonresident under Regulation .08 of this chapter. When an income tax deficiency is developed from an audit of a taxpayer's return, the Comptroller may make an assessment under Tax-General Article, §13-401, Annotated Code of Maryland. A taxpayer may appeal an assessment by applying for a hearing as provided under COMAR 03.01.01.04. When the amount of a taxpayer's federal net taxable income reported on the federal return is increased by the Internal Revenue Service (IRS) or any change is required by the IRS in the method of reporting, accounting for, or treatment of particular income, the taxpayer shall report to the Revenue Administration Division the increase of federal net taxable income or the nature of the change within 90 days after the IRS has issued its final determination. A disposition of an assessment by the IRS by way of abatement, settlement, or compromise may not be construed as an abatement, settlement, or compromise of the taxpayer's liability to this State. The report filed with the Comptroller's Office shall consist of: 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. If the taxpayer fails to file the report within 90 days, the Comptroller may make an assessment under Tax-General Article, §13-1101(b), Annotated Code of Maryland. If a taxpayer files a timely report, the Comptroller shall make an assessment within 1 year after receipt of the report as provided by Tax-General Article, §13-1101(c), Annotated Code of Maryland. After receipt of the federal audit report, the Comptroller shall re-compute the amount of tax due on the Maryland return and mail a report of income tax audit changes to the taxpayer's last known address. A taxpayer may appeal an assessment by applying for a hearing as provided under COMAR 03.01.01.04. Unless the Comptroller requires or allows another method, for taxable years beginning after December 31, 1992, an individual who is a resident for only part of the taxable year shall prorate the deduction for exemptions under Tax-General Article, §10-211 or 10-212, Annotated Code of Maryland, and the standard deduction under Tax-General Article, §10-217, or itemized deductions under Tax-General Article, §10-218, by using a fraction, the: Numerator of which is the individual's Maryland adjusted gross income; and Denominator of which is the individual's federal adjusted gross income. An individual taxpayer may designate a contribution on the taxpayer's return to be credited towards the: 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. A taxpayer may direct that the contribution be made as either: An addition to the tax owed by the taxpayer; or A reduction of the refund due the taxpayer. Amount of Contribution. 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: If one fund is designated, the designated contribution shall be given effect, up to the full amount of the refund plus any additional payment made with the filing of the return, less any reduction for taxes due; If more than one fund is designated, then the full amount of the refund, plus payments less any reductions for taxes, shall be divided between the funds with each fund receiving a proportionate amount of the contribution. Except as provided in §D of this regulation, an individual who is unable to file a personal income tax return by the due date shall file an Application for Extension of Time to File Maryland Income Tax Return (Form 502E). The application: Shall be filed by the original due date of the return; and Extends only the time allowed to file the income tax return. Full payment of the expected tax due is required with the filing of the application. An individual is not required to file an Application for Extension of Time to File Maryland Income Tax Return (Form 502E) if the individual: 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. Definitions. In this regulation, the following terms have the meanings indicated. Terms Defined. “Account holder” means the person who establishes an investment account on behalf of a qualified designated beneficiary. “Contributor” means an individual who contributes to a Maryland Senator Edward J. Kasemeyer Prepaid College Trust Account under Education Article, §18-1903, Annotated Code of Maryland. Investment Account. “Investment account” means an account established by an account holder under Education Article, Title 18, Subtitle 19A, Annotated Code of Maryland, on behalf of a qualified designated beneficiary for the purpose of applying distributions toward qualified higher education expenses at eligible educational institutions. “Investment account” may include more than one investment option. “Investment option” means the investment portfolios available to account holders in the Maryland Senator Edward J. Kasemeyer College Investment Plan. “Qualified designated beneficiary” has the meaning stated in §529(e) of the Internal Revenue Code. “Qualified higher education expenses” has the meaning stated in §529(e) of the Internal Revenue Code. Subtraction Modification. Regardless of the number of investment options included in an investment account: All contributions by an account holder or contributor on behalf of one qualified designated beneficiary constitute one investment account; and The subtraction modification in Tax-General Article, §10-208(o), Annotated Code of Maryland, is limited to $2,500 per year per qualified designated beneficiary. 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. Addition Modification. 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. An individual shall itemize deductions on the individual's federal income tax return in order to elect to itemize deductions on the individual's State income tax return. An individual who does not elect to itemize deductions may claim the standard deduction. Resident with Nonresident Spouse. 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: Claim the standard deduction; Claim: Only the individual's federal itemized deductions, from among those deductions claimed on the federal return, as limited under Tax-General Article, §10-218(b), Annotated Code of Maryland, that are attributable exclusively to the individual; and From among those federal itemized deductions of the individual not claimed under §C(1)(b)(i) of this regulation, a prorated amount of the itemized deductions in accordance with §C(1)(c) of this regulation; or Claim a prorated amount of the itemized deductions claimed on the federal income tax return by using a fraction, the: Numerator of which is the individual's Maryland adjusted gross income; and Denominator of which is the married couple’s joint federal adjusted gross income. For purposes of allocating itemized deductions under §C(1)(b)(i) of this regulation, “attributable exclusively” means that: The individual is solely responsible for the payment of an expense claimed as an itemized deduction, including compliance with a valid court order or separation agreement; or The individual jointly responsible for the payment of an expense claimed as an itemized deduction can demonstrate payment of the full amount of the itemized deduction with funds that are not attributable, in whole or in part, to the other jointly responsible individual. Definitions. In this regulation, the following terms have the meanings indicated. Terms Defined. “Diaper bank” means a nonprofit organization located in the State that: Is qualified as tax exempt under the Internal Revenue Code, §501(c)(3); Is established and operating primarily for the purpose of collecting or purchasing disposable diapers or other hygiene products for infants or children; and Distributes those diapers or hygiene products through schools, health care facilities, government agencies, or other nonprofit entities for eventual distribution to individuals free of charge. “Donation” means an irrevocable gift of: Disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products; or Cash that is specifically designated for the purchase of disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products. “Feminine personal hygiene products” means sanitary pads, tampons, menstrual sponges, menstrual cups, or other similar feminine hygiene products, whether reusable or disposable. “Qualified charitable entity” means a diaper bank, homeless shelter, domestic violence shelter, religious organization, or other charitable organization that distributes diapers, other hygiene products for infants or children, or feminine personal hygiene products, and that is registered with the Comptroller as a distributor of disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products as described in §C of this regulation. Subtraction for Individual Taxpayers. 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: The name of each qualified charitable entity to which a donation was made; The value of the donation to each qualified charitable entity identified in §B(2)(a) of this regulation, which the Comptroller may verify with the qualified charitable entity; and Any other information that the Comptroller requires. Qualified Charitable Entities. In order to register with the Comptroller as a qualified charitable entity, an entity shall: Submit an application in the form and manner prescribed by the Comptroller; Submit with the application required under §C(1)(a) of this regulation the following documents: The entity’s organizing instrument, such as its articles of incorporation; The entity’s current operating instrument, such as its by-laws; The entity’s determination letter from the Internal Revenue Service designating the entity as a §501(c)(3) charitable organization; and Certification that the entity is in good standing; Operate in compliance with all applicable federal, State, and local laws; Be registered as a charity with the Maryland Secretary of State; and Provide additional documentation as required by the Comptroller. Upon request by a donor, a qualified charitable entity shall issue to the donor a receipt indicating: For a cash donation, the amount donated that is specifically designated for the purchase of disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products; For a noncash donation, a description of the noncash contribution; The name of the organization; A statement that no goods or services were provided by the organization, if that is the case; A description and good faith estimate of the value of goods or services, if any, the organization provided in return for the contribution; A statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case; and The date of the donation. 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: A list of donors from whom the charity has received donations; and To the extent available, the value of each donor’s donation. Definitions. In this regulation, the following terms have the meaning indicated. Terms Defined. “Account holder” means a first-time homebuyer who establishes a first-time homebuyer savings account. “Allowable closing costs” means a disbursement listed on a settlement statement for the purchase of a home in the State by an account holder. “Eligible costs” means the down payment and allowable closing costs for the purchase of a home in the State by an account holder. “Financial institution” has the meaning stated in Financial Institutions Article, §1-101, Annotated Code of Maryland. “First-time homebuyer” means an individual who is a resident of the State and who has not owned or purchased, either individually or jointly, a home in the State in the last 7 years. “First-time homebuyer savings account” or “account” means an account with a financial institution that an account holder designates as a first-time homebuyer savings account on the account holder’s Maryland income tax return for taxable year 2021 or any following taxable year and that is established for the sole purpose of paying or reimbursing eligible costs for the purchase of a home in the State by the account holder. “Home” means a single-family residential real property, including a mobile home as defined in Real Property Article, §8A-101, Annotated Code of Maryland. “Settlement statement” means the statement of receipts and disbursements for a transaction related to real estate, including a statement prescribed under the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§2601—2617 and 12 CFR 1024. Availability of Subtraction. 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: Up to $5,000 of the amount contributed by an account holder to a first-time homebuyer savings account during the taxable year; and The earnings, including interest and other income on the principal, from the account during the taxable year. Limitations. An account holder may claim the subtraction under §B(1) of this regulation: For a period not to exceed 10 years; For total earnings not to exceed $50,000 during the 10-year period; and Except as provided for in §D(2) and (3) of this regulation, if the principal and earnings of the account remain in the account until a withdrawal is made for eligible costs related to the purchase of a home by the account holder. An account holder may not be the account holder of more than one account. The account holder shall use the funds in the account for eligible costs related to the purchase of a home within 15 years following the date on which the account was established. Any funds in the account for which a subtraction was claimed and not expended on eligible costs by December 31 of the last year of the 15-year period under §B(2)(c) of this regulation shall be subject to taxation as ordinary income. A person other than the account holder who transfers money to the account is not entitled to the subtraction. The subtraction is available in all taxable years beginning after December 31, 2020. 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. Each spouse on a joint return who is the sole account holder of a first-time homebuyer savings account may claim up to the full amount of the subtraction under §B(1) of this regulation. The amount claimed by each spouse is limited to their: Contributions to the account on which they are the account holder; and Earnings on the account on which they are the account holder. Claiming the Subtraction. 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: Copies of statements provided by the account holder’s financial institution; and The settlement statement related to the purchase of the home in the State by the account holder. Withdrawal for Purposes Other than Eligible Costs. 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: The funds shall be taxed as ordinary income of the account holder for the tax year in which they were withdrawn; and The account holder shall pay a penalty to the State equal to 10 percent of the amount withdrawn. Rollovers. An account holder may withdraw money from the account and deposit the money in a new first-time homebuyer savings account held by a different financial institution or the same financial institution. An account holder who withdraws funds from an account but does not deposit the funds in a new first-time homebuyer savings account within 60 days of withdrawal shall be subject to the tax and penalty described in §D(1) of this regulation. 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: Are disclosed by the financial institution, in writing, to the account holder at the time the account is opened; and Do not inure to the benefit of the account holder. Tax-General Article, §§2-103, 10-102.1, 10-208, and 10-823, Annotated Code of Maryland Effective date: Regulations .01—.05 adopted as an emergency provision effective November 3, 1980 (7:23 Md. R. 2159); adopted permanently effective March 13, 1981 (8:4 Md. R. 337) Regulations .01E—H, .02B—I, .04C, and .05A—D amended effective September 26, 1983 (10:19 Md. R. 1689) Regulations .01—.05, Tax Refund Intercept Program, repealed effective October 3, 1988 (15:20 Md. R. 2333) Regulations .01—.11, Individual, adopted effective January 9, 1989 (15:27 Md. R. 3126) Regulation .01 amended effective March 29, 1993 (20:6 Md. R. 579); January 24, 2000 (27:1 Md. R. 74) Regulation .01B amended effective October 9, 2006 (33:20 Md. R. 1612); February 9, 2009 (36:3 Md. R. 207) Regulation .02 amended effective October 12, 1992 (19:20 Md. R. 1813) Regulation .02A amended and C adopted effective November 20, 1994 (21:23 Md. R. 1931) Regulation .02C amended effective March 31, 2014 (41:6 Md. R. 377) Regulation .03 amended effective October 12, 1992 (19:20 Md. R. 1813); November 20, 1994 (21:23 Md. R. 1931) Regulation .03A amended effective March 21, 2011 (38:6 Md. R. 393); July 8, 2013 (40:13 Md. R. 1073) Regulation .03C amended effective March 31, 2014 (41:6 Md. R. 377) Regulation .04 repealed and new Regulation .04 adopted effective January 20, 1992 (19:1 Md. R. 23) Regulation .04 amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .04A amended effective October 9, 2006 (33:20 Md. R. 1612) Regulation .04B amended effective October 9, 2006 (33:20 Md. R. 1612); February 9, 2009 (36:3 Md. R. 207) Regulation .04C amended effective March 29, 1993 (20:6 Md. R. 579); January 14, 1999 (26:1 Md. R. 21); October 9, 2006 (33:20 Md. R. 1612); February 9, 2009 (36:3 Md. R. 207) Regulation .06 amended effective August 20, 1990 (17:16 Md. R. 1989); October 12, 1992 (19:20 Md. R. 1813); December 28, 1998 (25:26 Md. R. 1919); January 14, 1999 (26:1 Md. R. 21) Regulation .06C amended effective October 9, 2006 (33:20 Md. R. 1612); April 19, 2010 (37:8 Md. R. 614); March 21, 2011 (38:6 Md. R. 393); April 30, 2012 (39:8 Md. R. 533); March 31, 2014 (41:6 Md. R. 377) Regulation .06D adopted effective October 22, 2007 (34:21 Md. R. 1913) Regulation .06D amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .07 amended effective October 12, 1992 (19:20 Md. R. 1813) Regulation .07A amended effective August 20, 1990 (17:16 Md. R. 1989) Regulation .08 amended effective October 12, 1992 (19:20 Md. R. 1813) Regulation .08B amended effective October 9, 2006 (33:20 Md. R. 1612) Regulation .10 repealed and new Regulation .10 adopted effective January 14, 1999 (26:1 Md. R. 21) Regulation .11A amended effective April 28, 2014 (41:8 Md. R. 469) Regulation .11A, G amended effective January 14, 1999 (26:1 Md. R. 21) Regulation .12 adopted effective October 25, 1993 (20:21 Md. R. 1653) Regulation .13 adopted effective December 18, 1995 (22:25 Md. R. 1961) Regulation .13 amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .13A amended effective October 9, 2006 (33:20 Md. R. 1612); February 9, 2009 (36:3 Md. R. 207); May 2, 2022 (49:9 Md. R. 529) Regulation .13D amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .14 adopted effective December 28, 1998 (25:26 Md. R. 1919) Regulation .15 adopted effective December 23, 2002 (29:25 Md. R. 1981) Regulation .15 amended effective February 9, 2009 (36:3 Md. R. 207); May 2, 2022 (49:9 Md. R. 529) Regulation .15B amended effective March 31, 2014 (41:6 Md. R. 377) Regulation .16 adopted effective April 25, 2005 (32:8 Md. R. 741) Regulation .16C amended effective March 31, 2014 (41:6 Md. R. 377) Regulation .17 adopted effective March 21, 2022 (49:6 Md. R. 404) Regulation .18 adopted effective March 21, 2022 (49:6 Md. R. 404) This chapter provides specific guidance to all corporate entities subject to the Maryland income tax laws. COMAR 03.04.08 applies to banking and similar institutions as defined in that chapter. Corporations not coming within that definition, including subsidiaries or affiliates of banking and similar institutions, shall apportion their income between Maryland and other states as required by applicable regulations and administrative releases of the Comptroller. Banking and nonbanking institutions are required to file a Maryland corporate income tax return if they are engaged in or conducting business in this State. No change is intended by these regulations in existing income tax law or practice with respect to the level of activity sufficient to require the filing of an income tax return, or the apportionment of income to this State. Banking and nonbanking institutions may be required to use a modified apportionment formula under the authority of COMAR 03.04.08.03C if a banking institution, and of Regulation .08E of this chapter if a nonbanking institution. In this chapter, the following terms have the meanings indicated. Terms Defined. “Allocation” means the assignment of income to a particular state. “Apportionment” means the allocation of income between states by the use of a formula. A corporation, not expressly exempt, having any income allocable to this State, shall file a Maryland corporation income tax return even though it has no Maryland taxable income. Special Requirements. Special requirements apply to the following organizations: 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: Report pass-through items to shareholders, and Pay tax on income taxable at the corporate level; 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: The provisions of this chapter, with the exception of Regulation .08 of this chapter, and The provisions of COMAR 03.04.08. Organizations Exempt from Filing Corporation Income Tax Returns. The following organizations are exempt from filing corporation income tax returns: 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 shall file a corporation income tax return by the 15th day of the 4th month following the end of the tax year or period. The return shall be filed with a copy of the federal return for the corresponding tax year or period. Certain organizations that are afforded a later due date for filing federal returns under the Internal Revenue Code shall be afforded the same later due date for filing Maryland income tax returns. Extension of Time to File. 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. Signing of Returns. A return shall be signed by a duly authorized officer of the corporation and the tax return preparer if the preparer is other than an employee or officer of the corporation. Accounting Periods. The taxable year or period for which the return is filed shall be the same as that for which the federal return is filed, and in every instance that a federal return is required, a corresponding State return shall be filed. Use of Federal Figures. The starting point for the Maryland return is the taxable income as defined in the Internal Revenue Code and developed on the federal return. Corporations included in a consolidated filing for federal purposes shall file separate Maryland returns and compute separate taxable income. Rate of Tax. The tax rate is 8.25 percent of Maryland taxable income. Copy of Federal Return Required. 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. Reporting of Internal Revenue Service Adjustments. 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. Amended Returns. 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: The corporation shall attach a copy of the documents required and filed with the IRS; and A member of a consolidated group shall: Attach a copy of any related documents required and filed with the IRS for the group, and Reconcile the deduction claimed for the separate corporation. 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. Registration of Exempt Organizations. 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. Estimated Tax. 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. Net Operating Loss Deduction. 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. Capital Loss Carryover. A capital loss carryover shall be allowed for Maryland filing. However, a capital loss carryback may not be an allowable deduction under Maryland income tax law. Audits. All items reported on the return are subject to audit, verification, and revision. In the event of revision and assessment or reduced refund, the Comptroller shall issue a notice to the corporation. Appeals. A taxpayer may appeal an assessment or denial of a refund by applying for a hearing as provided under COMAR 03.01.01.04. Corporations engaged in business within and outside the State shall allocate income to reflect the amount attributable to this State. Corporations operating within and outside the State as unitary businesses shall use an apportionment formula to determine the amount of income to be allocated: 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. Apportionment Formula. 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: For a taxable year beginning before January 1, 2018, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, payroll factor, and twice the sales factor, and the denominator is four; For a taxable year beginning after December 31, 2017, but before January 1, 2019, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and three times the sales factor, and the denominator of which is five; For a taxable year beginning after December 31, 2018, but before January 1, 2020, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and four times the sales factor, and the denominator of which is six; For a taxable year beginning after December 31, 2019, but before January 1, 2021, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and five times the sales factor, and the denominator of which is seven; and For a taxable year beginning after December 31, 2020, but before January 1, 2022, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and six times the sales factor, and the denominator of which is eight. 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: Gross receipts are generally sales of tangible personal property and shall be included in the numerator if the property is delivered or shipped to a purchaser within this State, regardless of f.o.b. point or other conditions of sale. Sales of property in transit destined to this State also shall be included in the numerator. Gross receipts from contracting or service-related activities shall be included in the numerator if the receipts are derived from customers within this State as determined in §D of this regulation. Gross income from intangible items such as dividends, interest, royalties, and capital gains from the sale of intangible property shall be included in the numerator based upon the average of the property and payroll factors. Gross receipts from the rental, leasing, or licensing of real or tangible personal property shall be included in the numerator if the property is located within this State. When tangible personal property is in this State for a portion of the tax year, the income received for that portion shall be included in the numerator. Capital gains from the sale of real and tangible personal property shall be included in the numerator if the property is located within this State. However, ordinary net gain or loss derived from the sale of depreciable assets shall be excluded from the factor. Other income items shall be considered separately, and the actual treatment shall be dependent upon the nature and type of each item. 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 properties to which this subsection applies include: Buildings; Equipment; Inventory; Land; Machinery; and Other tangible assets. Property owned by a corporation shall be valued at its original cost and shall be reflected in the factor at the average of the tax year's beginning and ending amounts. However, if there are material changes during the tax year and the average is not a fair representation, the average shall be calculated on a monthly or daily basis. Property in transit shall be considered to be at its destination for purposes of the factor. Property under construction during the tax year shall be excluded from the factor until actually placed in service. Property leased or rented by the corporation shall be included in the factor at a capitalized value as follows: The expense associated with the privilege of occupying or using the property, including such items as fixed rent, percentage rent, real estate taxes, insurance, and maintenance, shall be multiplied by eight to arrive at the capitalized value; Expenses such as gas, electricity, oil, water, or other items normally consumed shall be excluded. Improvements to the leased or rented property which revert to the owner at the expiration of the lease or rental term shall be amortized and not capitalized. The following apply: The actual cost of the improvements shall be divided by the number of years remaining for the term of the lease; and The result shall be included in the factor for each tax year. Sublease income shall be included in the sales factor and not used to reduce rental expense. Nonrental or below market rate rental shall be adjusted to reflect a reasonable market rental rate and then capitalized as provided in §C(6)(e)(i) of this regulation. Property that has remained idle and has not produced any revenue for a period of 5 or more years may not be included in the property factor. The payroll factor shall be the amount of compensation paid during the taxable year, as follows: Compensation is included in the numerator if: The individual's service is performed entirely within this State, or The individual's service is performed both within and without this State but the service performed without this State is incidental to the individual's service within this State; Compensation is also included in the numerator if: Some part of the service is performed within this State, The base of operations or place from which the service is controlled is not in any state where the service is performed, and The individual's residence is in this State. Customers Within this State. “Customers within this State” shall be determined as provided in this section. Domicile. Individuals. Except as provided in this section, a customer to whom a service is provided shall be considered a customer within this State if the customer is an individual domiciled in this State. Business Enterprises. “Business enterprise” includes a proprietorship, partnership, limited liability partnership, corporation, limited liability company, and any other entity, regardless of how structured or denominated, that is engaged in business. A business enterprise shall be considered a customer within this State if the business enterprise is domiciled in this State. If the customer is a business enterprise, then the domicile is the state in which is located the office or place of business that provides the principal impetus for the sale. If an office or place of business cannot be identified as providing the principal impetus for the sale, then the domicile shall be the state in which the headquarters or principal place of business management of the customer is located. Example 2-1: X Company, a subsidiary corporation located in Maryland, administers medical plans on behalf of its parent corporation, which is located in Tennessee. X Company administers these medical plans for individuals that are domiciled in Maryland. The fees paid for these administration services are included in the numerator of X Company's sales factor. This example illustrates that the ultimate customer is determined by the domicile of the individual/business enterprise actually receiving the service. 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. Receipts from services that are derived directly or indirectly from the sale of management, distribution, administration, or securities brokerages services to, or on behalf of, a regulated investment company or its beneficial owners (including receipts derived directly or indirectly from trustees, sponsors, or participants of employee benefit plans that have accounts in a regulated investment company) shall be allocated to this State to the extent that shareholders of the regulated investment company are domiciled in this State. A separate computation shall be made with respect to the receipts derived from each regulated investment company. The total amount of receipts derived from each regulated investment company which are allocable to this State shall be equal to the total receipts so derived multiplied by a fraction: The numerator of which is the average of the sum of the beginning-of-the-year and end-of-the-year number of shares owned by the regulated investment company share-holders domiciled in this State; and The denominator of which is the average of the sum of the beginning-of-the-year and end-of-the-year number of shares owned by all shareholders. For purposes of the fraction, the year shall be the taxable year of the regulated investment company that ends with or within the taxable year of the taxpayer. “Domicile” means the shareholder's mailing address on the records of the regulated investment company. If the regulated investment company or the person providing management services to the regulated investment company has actual knowledge that the shareholder's primary residence or principal place of business is different than the shareholder's mailing address, then the shareholder's primary residence or principal place of business is the shareholder's domicile. If the shareholder's address is not known or determinable and it is impracticable to obtain this information, then the domicile of the shareholder will be the location or domicile of the business entity that provides the impetus for the transaction. 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. Other Apportionment Methods. 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: Trucks (Motorfreight Carriers). Number of miles traveled on roads in-State compared to the number of miles traveled on roads everywhere. Railroads. Number of miles traveled on tracks in-State compared to the number of miles traveled on tracks everywhere. Ships. Number of days spent in ports and on waterways in-State compared to the number of days spent in ports and on waterways everywhere. Special Rules. 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: To the extent of the factors required; and In the same manner as if they were direct receipts, property, and wages of the corporation. Separate accounting may be allowed only if: It is practicable; and The activity of the corporation within this State is nonunitary. Airline Industry. In this section, the following terms have the meanings indicated: “Departures” means all takeoffs, whether scheduled or nonscheduled flights, that occur during revenue service. “Flight equipment” means aircraft and their integral components. Originating Passengers. “Originating passengers” means passengers first received in air travel as reported on the Department of Transportation “Passenger Origin and Destination Survey Report.” “Originating passengers” does not include enplanements occurring on flight changes en route. “Originating tons” means loaded or short tons (2,000 pounds) of cargo at the beginning of a flight. “Value” means the original cost of real property or tangible personal property and, in the case of rented or leased property, value means eight times the net annual rental or lease expense. 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. The numerator of the sales factor is the sum of the passenger revenue and freight revenue allocable to this State for the taxable year. Passenger revenue is computed by multiplying passenger revenue everywhere by the ratio of the number of originating passengers in Maryland compared to the number of originating passengers everywhere. Freight revenue is computed by multiplying freight revenue everywhere by the ratio of originating tons in this State compared to originating tons everywhere. The denominator of the sales factor is the sum of passenger revenue everywhere plus freight revenue everywhere. Property Factor. The numerator of the property factor is the sum of the average value of real property and tangible personal property owned, rented, and used in this State during the taxable year plus the value of flight equipment allocable to this State. The allocation of the value of flight equipment is determined by the following: 50 percent times the air miles in this State over the air miles everywhere times the value of flight equipment everywhere; plus 50 percent times the departures from this State over the departures everywhere times the value of flight equipment everywhere. The denominator of the property factor is the sum of the average value of all real property and tangible personal property owned and rented everywhere, including the value of all flight equipment. Payroll Factor. The numerator of the payroll factor is the total amount paid as compensation for services performed in this State plus flight crew compensation allocable to this State. The allocation of flight crew compensation allocable to this State is determined by the following: 50 percent times the air miles in this State over the air miles everywhere times flight crew compensation everywhere; plus 50 percent times the departures from this State over the departures everywhere times flight crew compensation everywhere. The denominator of the payroll factor is the total payroll everywhere for the taxable year. The final apportionment factor is arrived at by averaging the sum of the separately computed sales, property, and payroll factors. Scope. This regulation applies to: Motion picture and television film producers and affiliated distribution companies; Producers of television commercials; Television networks; and Independent television stations, to the extent they are members of a chain of commonly owned stations all of which operate as network affiliates or all of which are unaffiliated with a network but which operate: Collectively in purchasing properties for telecast or in marketing air time, or As a producer. This regulation applies to taxable years beginning after December 31, 1998. In this regulation, the following terms have the meanings indicated: Film. “Film” means the physical embodiment of a play, story, or other literary, commercial, educational, or artistic work as a motion picture, video tape, disc, or other similar medium, except that it does not include news or sports films produced for telecast. “Film” does not include video cassettes or discs intended for home viewing. “Release date” means the date on which a film is placed in service as follows: A film is placed in service when it is first telecast or exhibited to the primary audience for which the film was created; A motion picture film is placed in service when it is first publicly exhibited for entertainment purposes; An educational film is placed in service when it is first exhibited for instructional purposes; Each episode of a television series is placed in service when it is first telecast; and A film is not placed in service merely because it is completed and therefore in a condition or state of readiness and availability for telecast or exhibition, or merely because it is telecast or exhibited to prospective exhibitors, sponsors, or purchasers, or is shown in a “sneak preview” before a select audience. “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. Films. 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. Apportionment of Business Income. The property, payroll, and sales factor of the apportionment formula for motion picture and television film producers and television networks is computed pursuant to Tax-General Article, §10-402, Annotated Code of Maryland, and Regulation .08 of this chapter, except as provided in this regulation. Property Factor. 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: Is the original cost of producing the film as determined for federal income tax purposes, before any adjustment for federal credits which have not been claimed for state purposes; and Includes talent salaries. 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. All real property and tangible personal property (other than films), whether owned or rented, which is used in the business, are included in the denominator. Films are included in the property factor at original cost for 12 years beginning with the release date. Films of a topical nature including news or current event programs, sporting events, or interview shows are included in the property factor at original cost for 1 year beginning with the release date. All films, other than those included in the denominator under §E(5)(b) and (c) of this regulation, are aggregated and treated as a single film property which is included in the property factor. This property is valued at eight times the gross receipts generated during the income year from theater distribution, network television, television syndication, cable television, subscription television, and the marketing of video cassettes and discs through licensing or direct selling, or similar receipts, but not in an amount greater than the total original cost of the aggregated film property. Numerator. If tangible personal property (other than films) is located or used in this State for part of the income year, its value is determined by applying the ratio which the number of days the property is located or used in this State bears to the total number of days the property was owned or rented during the taxable year. The total value of films included in the property factor under §E(5) of this regulation is attributed to this State in the same ratio as the total Maryland receipts from these films, as determined in §G(1)—(3) of this regulation pertaining to the sales factor, bears to the total of receipts of these films everywhere. Payroll Factor. Denominator. The denominator includes all compensation paid to employees during the taxable year, including talent salaries and residual and profit participation payments. The amount paid to a corporation for providing the services of an actor or director who is an employee of the corporation, or for loaning the services of an actor or director who is under contract with the corporation, is, if substantial, included in the producer's payroll factor as if the amount paid was compensation paid to an employee of the producer. 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. Sales Factor. The numerator includes all gross receipts of the taxpayer from sources within this State including the following: Gross receipts from films in release to theaters and television stations located in this State; Gross receipts from films in release to or by a television network for network telecast in the ratio that the audience for the network stations (owned and affiliated) located in Maryland bears to the total audience for all network stations (owned and affiliated) everywhere; Gross receipts from films in release to subscription television telecasters in the ratio that the subscribers for the telecaster located in Maryland bears to the total subscribers of the telecaster everywhere; and Receipts from sales and rentals of video cassettes and discs as provided in Regulation .08C(3)(a), (b), and (e) of this chapter. 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. Making and Revoking Election for Exclusion from this Regulation. 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: The name of the electing company; The address of the electing company; The taxpayer identification number of the electing company; and A statement to the effect that the company is electing to be excluded from the apportionment of income as required in this regulation. 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 under this regulation may be revoked by the electing company at any time by attaching a statement to its tax return for the year for which the revocation is made. The revocation shall contain the following information: The name of the revoking company; The address of the revoking company; The taxpayer identification number of the revoking company; and A statement to the effect that the company is revoking its election to be excluded from the apportionment of income as required in this regulation. A company that has revoked its election under §H(6) of this regulation may not thereafter elect to be excluded from the requirements of this regulation. 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. Scope. This regulation provides specific guidelines for manufacturing corporations subject to the Maryland income tax laws. In this regulation, the following terms have the meanings indicated: Manufacturing Corporation. “Manufacturing corporation” means a domestic or foreign corporation that is primarily engaged in activities that, in accordance with the North American Industrial Classification System, would be included in sector 11, 31, 32, or 33. “Manufacturing corporation” does not include: A refiner, as defined in Business Regulation Article, §10-101, Annotated Code of Maryland; An affiliated or commonly controlled corporation that engages in activities on behalf of a manufacturing corporation, either directly or indirectly; or An affiliated or unaffiliated service provider. “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. Classification as a Manufacturing Corporation. 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. The operation of the criteria in §C(1) of this regulation is shown by §C (2) (b)—(d) of this regulation. X Company sells goods that are manufactured under cost plus contracts and service agreements by affiliated subsidiaries and unaffiliated companies. X Company's only activities are related to storage and transportation of goods, sales, and general headquarters management. X Company is not a manufacturing corporation within the meaning of this regulation. Y Company sells motorcycles produced from parts such as engines, frames, and gears that it purchases from a variety of affiliated and unaffiliated suppliers. It assembles these parts into finished products for resale using its own employees to do so. Y Company is a manufacturing corporation within the meaning of this regulation. Z Company manufactures, sells, and installs custom and off-the-shelf cabinets. Z Company is a manufacturing corporation within the meaning of this regulation. C Contractor purchases custom and off-the-shelf cabinets for its customers and installs the cabinets in its customers' homes. Although C Contractor may assemble the off-the-shelf cabinets and install them, C Contractor is not a manufacturing corporation within the meaning of this regulation. Primarily Engaged. A manufacturing corporation is primarily engaged in activities that would be included in NAICS sector 11, 31, 32, or 33 if: More than 50 percent of the corporation's sales are derived from activities from one or more of these sectors; and Line 1c of the corporation's federal income tax return (sales) are more than 50 percent of line 11 of the corporation's federal income tax return (total income). 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: Sales of tangible personal property shall be allocated to the numerator or denominator of the factor by the same methods and rules applied in COMAR 03.04.03.08C(3)(a) and (b); Gross receipts from the rental, leasing, or licensing of real or tangible personal property shall be allocated to the numerator or the denominator by the same methods and rules applied in COMAR 03.04.03.08C(3)(e) and (f); Service income shall be allocated to the numerator or denominator by the same methods and rules applied in COMAR 03.04.03.08C(3)(c); Gross receipts from intangible items such as interest, royalties, capital gains, including capital gains from sales of tangible personal property, and ordinary gains and losses shall be excluded from the numerator and denominator; and Other income items shall be considered separately and the actual treatment shall be dependent upon the nature and type of each item. Apportionment Method. If a manufacturing corporation carries on its trade or business within and outside of the State and the trade or business is a unitary business, the part of the corporation's Maryland modified income derived from or reasonably attributable to trade or business carried on in the State shall be determined using a single sales factor apportionment formula, by multiplying its Maryland modified income by 100 percent of the sales factor. Tax Return Reporting. NAICS Code. In filing its tax return for each year, a manufacturing corporation shall certify that the NAICS code reported on its Maryland tax return is consistent with that reported to other government agencies and accurately reflects the primary activities of the corporation. If the Comptroller determines that a corporation has submitted information that incorrectly classifies the corporation as a manufacturing corporation, the Comptroller shall reclassify the corporation in an appropriate manner. 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: The difference in tax owed as a result of using the single sales factor apportionment method under this regulation as compared to the tax owed using the three-factor, double-weighted sales factor apportionment method as set forth in COMAR 03.04.03.08, in effect for the last taxable year beginning on or before December 31, 2000; The volume of sales in the State and worldwide; The taxable income in the State and worldwide; and The book value of plant, land, and equipment in the State and worldwide. Definitions. In this regulation, the following terms have the meanings indicated. Terms Defined. “Diaper bank” means a nonprofit organization located in the State that: Is qualified as tax exempt under §501(c)(3) of the Internal Revenue Code; Is established and operating primarily for the purpose of collecting or purchasing disposable diapers or other hygiene products for infants or children; and Distributes those diapers or hygiene products through schools, health care facilities, government agencies, or other nonprofit entities for eventual distribution to individuals free of charge. “Donation” means an irrevocable gift of: Disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products; or Cash that is specifically designated for the purchase of disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products. “Feminine personal hygiene products” means sanitary pads, tampons, menstrual sponges, menstrual cups, or other similar feminine hygiene products, whether reusable or disposable. “Qualified charitable entity” means a diaper bank, homeless shelter, domestic violence shelter, religious organization, or other charitable organization that distributes diapers, other hygiene products for infants or children, or feminine personal hygiene products, and that is registered with the Comptroller as a distributor of disposable diapers, other hygiene products for infants or children, or feminine personal hygiene products as described in COMAR 03.04.02.17. Subtraction for Corporations. 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: The name of each qualified charitable entity to which a donation was made; The value of the donation to each qualified charitable entity identified in §B(2)(a) of this regulation, which the Comptroller may verify with the qualified charitable entity; and Any other information that the Comptroller requires. Tax-General Article, §§2-103 and 10-306.1(h), Annotated Code of Maryland Effective date: January 9, 1989 (15:27 Md. R. 3126) Regulation .01 amended effective January 1, 1998 (24:12 Md. R. 861); June 25, 2001 (28:12 Md. R. 1103) Regulation .01E repealed effective May 2, 2022 (49:9 Md. R. 529) Regulation .03B amended effective January 1, 1998 (24:12 Md. R. 861); January 14, 1999 (26:1 Md. R. 22); October 9, 2006 (33:20 Md. R. 1612) Regulation .03C amended effective January 14, 1999 (26:1 Md. R. 22); October 9, 2006 (33:20 Md. R. 1612) Regulation .04A amended effective March 27, 2017 (44:6 Md. R. 324) Regulation .04C amended effective October 22, 2007 (34:21 Md. R. 1913); April 19, 2010 (37:8 Md. R. 614) Regulation .05C amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .06A amended effective April 19, 2010 (37:8 Md. R. 614) Regulation .06B, C amended effective August 20, 1990 (17:16 Md. R. 1989) Regulation .06D amended effective January 14, 1999 (26:1 Md. R. 22) Regulation .06E amended effective December 22, 2003 (30:25 Md. R. 1844); July 8, 2013 (40:13 Md. R. 1073) Regulation .07A amended effective October 22, 2007 (34:21 Md. R. 1913) Regulation .07D amended effective January 14, 1999 (26:1 Md. R. 22) Regulation .08 amended effective January 1, 1998 (24:26 Md. R. 1754); May 2, 2022 (49:9 Md. R. 529) Regulation .08B amended effective October 9, 2006 (33:20 Md. R. 1612) Regulation .08C amended effective October 12, 1992 (19:20 Md. R. 1813); October 9, 2006 (33:20 Md. R. 1612) Regulation .08D amended effective October 9, 2006 (33:20 Md. R. 1612) Regulation .08G adopted effective October 9, 2006 (33:20 Md. R. 1612) Regulation .09 adopted effective April 3, 2000 (27:6 Md. R. 639) Regulation .09G amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .10 adopted effective March 4, 2002 (29:4 Md. R. 416) Regulation .10F amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .11 adopted effective March 21, 2022 (49:6 Md. R. 404) Income tax payments received by the Comptroller shall be applied as follows: Payments accompanying returns shall be applied to the period covered by the return in the following manner: First to any penalty; Second to accrued interest; and Third to the unpaid tax. All other payments shall be applied to the earliest delinquent tax year in the following manner: First to any penalty; Second to accrued interest; and Third to the unpaid tax. A refund of income tax due a taxpayer shall be applied first as provided for in §A(2) of this regulation, and then in the following order of priority: To any debt collection intercept under COMAR 03.04.05 or 03.04.06; and To the taxpayer of any remaining balance. Tax-General Article, §2-103, Annotated Code of Maryland Effective date: January 9, 1989 (15:27 Md. R. 3126) Regulation .01 amended effective August 20, 1990 (17:16 Md. R. 1989); May 2, 2022 (49:9 Md. R. 529) Regulation .02C amended effective January 14, 1999 (26:1 Md. R. 22) Regulation .02 repealed effective October 9, 2006 (33:20 Md. R. 1612) Regulation .03H adopted effective January 14, 1999 (26:1 Md. R. 22) Regulation .03 repealed effective October 9, 2006 (33:20 Md. R. 1612) “Central Collection Unit” means the Central Collection Unit of the Department of Budget and Management. “Certify” means to furnish to the Comptroller the names, with other identification including address, Social Security or federal tax identification number, and amount of debt of debtors owing money to the State. “Comptroller” means the Comptroller of the Treasury. “Debt” means any liquidated sum due and owing any State agency which has accrued through contract, subrogation, tort, operation of law, or other cause of action, regardless of whether there is an outstanding judgment for that sum. “Intercept” means the action of the Comptroller of withholding all or part of a tax refund due a taxpayer and remitting it to the Central Collection Unit. “Debtor” means any individual, fiduciary, or business entity which may be entitled to receive a Maryland income tax refund and which owes money to, or has a delinquent account with, any State agency which has not been adjudged satisfied by court order, set aside by court order, or discharged in bankruptcy. “Debtor” and “taxpayer” are synonymous, when a match of names has been made by the Comptroller. “Refund” means any taxpayer's Maryland income tax refund. “Review officer” means a staff person designated by the Central Collection Unit to conduct hearings and to render decisions as described in this chapter. “State agency” means any agency, association, board, bureau, college, commission, committee, council, foundation, fund, department, institute, institution, public corporation, service, trust, university, or other unit of State government, including any subunit of these agencies. The Central Collection Unit may certify to the Comptroller the name of any debtor: 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 Central Collection Unit may not certify any account with a balance of $25 or less. The certification shall be made on or before the first day of November for the tax refund payable the following year. Each certification shall provide the name, address, Social Security or federal identification number, and any known aliases of the debtor certified. It shall also provide the Central Collection Unit sequence number and the total amount of the debt. At least 30 calendar days before certification of a debt, the Central Collection Unit shall send the debtor written notice of the intention to certify the debt. This notice shall also advise the debtor of: 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. As frequently as practical, the Comptroller shall compare the names of the debtors certified by the Central Collection Unit with the names of taxpayers who file tax returns and are entitled to a tax refund. If a match is made between a taxpayer eligible for tax refund and a certified debtor, the Comptroller shall pay the refund to the Central Collection Unit, but only to the extent of the amount of the debt certified. Any refund in excess of a certified debt shall be paid by the Comptroller to the debtor. If a match occurs with one of the parties to a joint tax return, the Comptroller shall withhold only the portion of the refund attributable to the debtor. The Comptroller shall remit to the Central Collection Unit payments withheld pursuant to this chapter. The Comptroller shall also provide the Central Collection Unit with a list identifying the debtors for whom remittance is made and the debtors for whom the Comptroller has determined that no intercept can be made. The list shall include each debtor's name, address, Social Security number or federal tax identification number, and the Central Collection Unit account number. The Comptroller shall notify a debtor for whom an intercept is made of the amount paid to the Central Collection Unit and of his right to request an investigation by the Central Collection Unit of the validity of the debt and to request an administrative hearing subject to judicial review in accordance with the Administrative Procedure Act. The Comptroller shall delete a certified name or change names certified when instructed to do so by the Central Collection Unit. Within 15 days of the notice of the Central Collection Unit's intention to certify his name or of the Comptroller's having intercepted his refund, a debtor has the right to request an investigation by the Central Collection Unit if the debtor disputes the validity or the amount of the debt. The Central Collection Unit shall submit to the debtor a report of its findings within 15 days from the date that the request for investigation was received. The report shall include a notice of the right to request a hearing on the findings and the method of doing so in accordance with the Administrative Procedure Act. If the investigation results in the reduction or elimination of the debt, the Central Collection Unit shall take corrective action as necessary, by correcting the certification, discontinuing the certification procedures, or remitting to the debtor any intercepted amounts in excess of the debt. Corrective action shall be taken within 30 days of the date on which the Central Collection Unit completes a report of its findings. A debtor may contest the findings of the investigation as to the validity and the amount of the debt in a hearing before the Central Collection Unit. Any request for a hearing shall be submitted in writing to the Central Collection Unit within 30 days of the date of which the investigation report was mailed to the debtor. In the hearing before the Central Collection Unit, the debtor may not raise any issue regarding the amount of tax refund otherwise due the taxpayer. This restriction does not prejudice any rights available to the debtor under the tax laws. The Central Collection Unit may deny a request for a hearing if the: 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. Conduct of Hearings. 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. Decisions. 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. Judicial Appeal. A taxpayer may appeal the review officer's decision in accordance with the Administrative Procedure Act. Tax-General Article, §§2-103 and 13-919, Annotated Code of Maryland Effective date: November 8, 1982 (9:22 Md. R. 2198) (jointly promulgated with the Department of Budget and Management — see COMAR 17.01.02) Chapter recodified from COMAR 03.04.03 to COMAR 03.04.05 effective October 3, 1988 (15:20 Md. R. 2333) Regulation .01A amended effective October 9, 2006 (33:20 Md. R. 1612) Regulation .01B, G amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .02C amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .03C amended effective October 9, 2006 (33:20 Md. R. 1612) Regulation .03D amended effective March 21, 2011 (38:6 Md. R. 393) For regulations describing the procedures for the State Tax Refund Intercept Program, see COMAR 07.07.08. Tax-General Article, §2-103; Family Law Article, §10-113; Annotated Code of Maryland Effective date: October 3, 1988 (15:20 Md. R. 2333) Regulations .01—.03 repealed and new Regulation .01 adopted effective October 9, 2006 (33:20 Md. R. 1613) In this chapter, the following terms have the meanings indicated. Terms Defined. “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: For a pass-through entity that is a partnership (including a limited liability company taxed as a partnership and a business trust taxed as a partnership), the total nonresident members' share of the distributive share of partnership income allocated to this State; and For a pass-through entity that is an S corporation, the total nonresident members' pro rata share of S corporation income allocated to this State. “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. Imposition of Tax on Nonresident Members. A tax is imposed on a pass-through entity that: Has a nonresident member; Has nonresident taxable income for the taxable year; and Does not elect to pay the tax with respect to the distributive shares 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 paid under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland, with respect to nonresident members' distributive or pro rata shares of income shall be treated as a tax imposed on the nonresident member that is paid by the pass-through entity on behalf of the nonresident member. Election to Pay Tax with Respect to All Members 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. Allocation of Income for a Multistate Pass-Through Entity. 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: The apportionment formula for corporations under COMAR 03.04.03.08 A—E; or Separate accounting. A multistate pass-through entity that is an S corporation shall allocate income to this State using: The apportionment formula for corporations under COMAR 03.04.03.08 A—E; or Separate accounting, but this method is only allowable if the business activity of the S corporation within this State is not unitary. Amount of Tax. 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. If the pass-through entity has one or more nonresident members that are individuals, and does not elect to pay the 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, the amount of tax is the sum of: The nonresident taxable income of the nonresident members that are individuals, multiplied by the lowest rate of income tax for an individual under Tax-General Article, §10-106.1, Annotated Code of Maryland; and The nonresident taxable income of the nonresident members that are individuals, multiplied by the top marginal State tax rate for an individual under Tax-General Article, §10-105(a), Annotated Code of Maryland. If the pass-through entity has one or more nonresident entity members, the amount of tax is computed by applying the rate of tax for a corporation under Tax-General Article, §10-105(b), Annotated Code of Maryland, to the nonresident taxable income of the nonresident entity members. If the pass-through entity has a nonresident member that is an individual and a nonresident entity member, then the amounts as computed in §E(1)(a) and (b) of this regulation shall be summed to arrive at the amount of tax. 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. If the pass-through entity has one or more members that are individuals, the amount of the tax is the sum of: The individual members' distributive or pro rata share of the pass-through entity's taxable income, multiplied by the lowest rate of income tax for an individual under Tax-General Article, §10-106.1, Annotated Code of Maryland; and The individual members' distributive share or pro rata share of the pass-through entity's taxable income, multiplied by the top marginal State tax rate for an individual under Tax-General Article, §10-105(a), Annotated Code of Maryland. If the pass-through entity has one or more entity members, the amount of the tax is computed by applying the rate of tax for a corporation under Tax-General Article, §10-105(b), Annotated Code of Maryland, to the distributive or pro rata share of the pass-through entity's taxable income of entity members. If the pass-through entity has a member that is an individual and an entity member, then the amounts as computed in §E(2)(a) and (b) of this regulation shall be summed to arrive at the amount of the tax paid on all members distributive or pro rata share. Limitation on Tax Imposed. The tax imposed on a pass-through entity is the lesser of: 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. Special: Certain Members. 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. Requirement to File Returns. 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. A 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 file with the information return a copy of: Schedule K of Federal Form 1065; and A Schedule K-1 for each nonresident member. A pass-through entity that is an S corporation shall file with the information return a copy of: Schedule K of Federal Form 1120S; and A Schedule K-1 for each nonresident member. Due Date. Except as provided in §A(5) of this regulation, the due date for filing a return is: For a pass-through entity that is a partnership (including a limited liability company taxed as a partnership and a business trust taxed as a partnership), the 15th day of the 4th month following the close of the partnership's taxable year; and For a pass-through entity that is an S corporation, the 15th day of the 4th month following the close of the taxable year. Extension of Time to File. A 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 be granted an automatic extension of up to 6 months by filing a Form 510E. A pass-through entity that is an S corporation shall be granted an automatic extension of up to 7 months by filing a Maryland Form 510E. Time for Filing. The due date for filing an extension is: For a pass-through entity that is a partnership (including a limited liability company taxed as a partnership and a business trust taxed as a partnership, the 15th day of the 4th month following the close of the partnership's taxable year; and For a pass-through entity that is an S corporation, the 15th day of the 4th month following the close of the S corporation's taxable year. Estimated Tax Returns. 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. A pass-through entity that is a partnership (including a limited liability company taxed as a partnership and a business trust taxed as a partnership) required to file estimated tax returns shall file the returns and pay the tax due on or before the 15th day of the 4th, 6th, and 9th month of the tax year and the 15th day of the 1st month of the succeeding year. A pass-through entity that is an S corporation required to file estimated tax returns shall file the returns and pay the tax due on or before the 15th day of the 4th, 6th, 9th, and 12th month of the tax year. Unpaid Tax. The Comptroller shall assess interest and penalties on the underpayment of estimated tax based on the unpaid tax from the due date of the tax to the date on which the tax is paid. The unpaid tax is the lesser of: 90 percent of the tax required to be shown on the return for the current taxable year; or 110 percent of the tax paid for the prior taxable year. 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. Annual Return. Requirement to File. A pass-through entity shall file an annual return whether or not a tax is due. The annual return shall reconcile the total estimated taxes paid with the total tax liability computed on the return. If estimated tax returns are not required, the annual return shall develop the tax due for the taxable year. 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: An extension is requested for the information return; and The extension is requested within the time provided under §A(5)(c) of this regulation. Effect of Extension. An extension of time to file an annual return may not extend the time for payment of any tax due. Credit for Tax Paid. 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: The tax return of the member; or If the entity does not elect to be taxed on all members' distributive or pro rata shares of income, a composite return filed on behalf of the electing nonresident member by the pass-through entity paying the tax on behalf of nonresidents under Tax-General Article, §10-102.1(b)(2)(i), Annotated Code of Maryland. 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: Refunded to the pass-through entity; or Applied to the current year estimated tax of the pass-through entity. 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: Refunded to the pass-through entity; or Applied to the current year estimated tax of the pass-through entity. Member That Is a Pass-Through Entity. A member of a pass-through entity that is itself a pass-through entity also shall file the form as provided under §A or C(1) of this regulation. Requirements. A pass-through entity shall provide each member with an income tax statement. Form and Contents of Statement. Form. A pass-through entity may elect to use a: Maryland Form 510, Schedule K-1; Modified Federal Form K-1; or Statement prepared by the pass-through entity on its own form. Contents. Pass-through Entity Income Tax Statement. A pass-through entity that elects to use its own form as provided under §B(1)(b) of this regulation shall label the statement “Member Income Tax Statement”, and the statement shall contain the following: Name and address of the pass-through entity; Federal employer identification number of the pass-through entity; Maryland central registration number of the pass-through entity, if one has been issued; Name and address of the member; Social Security number or federal employer identification number of the member; Amount of the member's distributive or pro rata share of income attributable to Maryland sources; Description and amount of Maryland addition and subtraction modifications allocated to the member; Amount of the Maryland tax paid on the member's shares of distributable or pro rata income; and Description and amount of Maryland credits allocated to the member. Modified Form K-1. A pass-through entity that elects to use a modified Form K-1, in addition to the information provided for federal purposes, shall include the amount of the: Member's share of income attributable to Maryland sources; Description and amount of addition and subtraction modifications allocated to the member; Tax paid on the member's shares; and Description and amount of credits allocated to the member. A pass-through entity may file a composite return on behalf of the nonresident members that are individuals (not including fiduciaries) pursuant to COMAR 03.04.02.04. An electing pass-through entity may not file a composite return on behalf of any members. Tax-General Article, §§2-103 and 10-102.1(c) and (f), Annotated Code of Maryland Effective date: January 20, 1992 (19:1 Md. R. 23) Regulation .01B amended effective March 29, 1993 (20:6 Md. R. 579) Regulation .02C amended effective January 14, 1999 (26:1 Md. R. 22) Regulation .03 amended effective November 20, 1994 (21:23 Md. R. 1931) Regulation .03B amended and D adopted effective December 22, 2003 (30:25 Md. R. 1845) Regulation .04B amended effective December 22, 2003 (30:25 Md. R. 1845) Chapter revised effective October 9, 2006 (33:20 Md. R. 1613) Regulation .01B amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .02 amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .02B amended effective April 19, 2010 (37:8 Md. R. 614) Regulation .02C amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .03 amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .03A amended effective March 27, 2017 (44:6 Md. R. 324) Regulation .04 amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .04B amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .05 amended effective May 2, 2022 (49:9 Md. R. 529) This chapter provides specific guidance to banking and similar institutions subject to the Maryland income tax laws. In this chapter, the following terms have the meanings indicated. Terms Defined. Banking institution. “Banking institution” means a: Commercial bank; Savings bank, except a savings bank chartered by the Office of Thrift Supervision; Trust company; Company that substantially competes with national banks in the State; Credit company; Finance company, other than a finance company that makes loans only to farmers for agricultural purposes; International banking facility; Loan company; Mortgage company; Safe-deposit company; or Savings and loan association. “Banking institution” does not include: A company licensed under the federal Small Business Investment Act of 1958; A corporation that elects to be taxed as a small business corporation under Subchapter S of the Internal Revenue Code; An entity that is a real estate mortgage conduit as defined in the Internal Revenue Code; or A limited liability company. “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: Borrower, other than a credit card holder, that is engaged in a trade or business which maintains its commercial domicile in this State; or Borrower that is not engaged in a trade or business or a credit card holder whose billing address is in this State. Commercial Domicile. “Commercial domicile” means: The headquarters of the trade or business; that is, the place from which the trade or business is principally managed and directed; or If a taxpayer is organized under the laws of a foreign country, or of the Commonwealth of Puerto Rico, or any territory or possession of the United States, the state of the United States or the District of Columbia from which the taxpayer's trade or business in the United States is principally managed and directed. It shall be presumed, subject to rebuttal, that the location from which the taxpayer's trade or business is principally managed and directed is the state of the United States or the District of Columbia to which the greatest number of employees are regularly connected or out of which they are working, irrespective of where the services of the employees are performed as of the last day of the taxable year. “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: Only activities are the maintenance and management of intangible investments, and the collection and distribution of income from intangible investments; and Principal income is interest and dividends from one or more of the entities described in §B(1)(a)(v)—(xi) of this regulation. Gross Rents. “Gross rents” means the actual sum of money or other consideration payable for the use or possession of property. “Gross rents” includes, but is not limited to: Any amount payable for the use or possession of real property or tangible property whether designated as a fixed sum of money or as a percentage of receipts, profits, or otherwise; Any amount payable as additional rent or in lieu of rent, such as interest, taxes, insurance, repairs, or any other amount required to be paid by the terms of a lease or other arrangement; and A proportionate part of the cost of any improvement to real property made by or on behalf of the taxpayer which reverts to the owner or lessor upon termination of a lease or other arrangement. Under §B(9)(b)(iii) of this regulation, the amount to be included in gross rents is the amount of amortization or depreciation allowed in computing the taxable income base for the taxable year. However, where a building is erected on leased land by or on behalf of the taxpayer, the value of the land is determined by multiplying the gross rent by eight, and the value of the building is determined in the same manner as if owned by the taxpayer. “Gross rents” does not include: Reasonable amounts payable as separate charges for water and electric service furnished by the lessor; Reasonable amounts payable as service charges for janitorial services furnished by the lessor; Reasonable amounts payable for storage, if the amounts are payable for space not designated and not under the control of the taxpayer; and That portion of any rental payment which is applicable to the space subleased from the taxpayer and not used by it. Loan. “Loan” means an extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of the extension of credit from another. “Loan” includes participations, syndications, and leases treated as loans for federal income tax purposes. “Loan” does not include: Properties treated as loans under §595 of the Internal Revenue Code as in effect January 1, 1996; Futures or forward contracts; Options; Notional principal contracts such as swaps; Credit card receivables, including purchased credit card relationships; Non-interest-bearing balances due from depository institutions; Cash items in the process of collection; Federal funds sold; Securities purchased under agreements to resell; Assets held in a trading account; Securities; Interests in a REMIC, as defined in §860D of the Internal Revenue Code, or other mortgage-backed or asset-backed security; and Other similar items. “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. “Principal base of operations” with respect to transportation property means the place from which that property is regularly directed or controlled. “Principal base of operations” with respect to an employee means the place from which the employee regularly: Starts work and to which the employee customarily returns in order to receive instructions from the employer; Communicates with customers or other persons; or Performs any other functions necessary to the exercise of the employee's trade or profession at some other point or points. Real Property Owned. “Real property owned” means real property: On which the taxpayer may claim depreciation for federal income tax purposes; or To which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes, or could claim depreciation if subject to federal income tax. “Real property owned” does not include property acquired in lieu of or pursuant to a foreclosure. “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. “Tangible personal property owned” means tangible personal property: On which the taxpayer may claim depreciation for federal income tax purposes; or To which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes, or could claim depreciation if subject to federal income tax. “Tangible personal property owned” does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure. “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. Except as otherwise specifically provided, a banking institution whose business activity is taxable both within and without this State shall allocate and apportion its income as provided in this regulation. All income which is includable in the Maryland modified income, as defined in Tax-General Article, §10-304, Annotated Code of Maryland, shall be apportioned to this State by multiplying that income by the apportionment percentage. The apportionment percentage is a fraction (as described in §D of this regulation) consisting of the taxpayer's property factor (as described in Regulation .05 of this chapter), payroll factor (as described in Regulation .06 of this chapter), and receipts factor (as described in Regulation .04 of this chapter). The apportionment formulas described in §D of this regulation are required only on original returns filed on or after this regulation's effective date. Apportionment Formula. 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: For a taxable year beginning before January 1, 2018, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, payroll factor, and twice the receipts factor, and the denominator is four; For a taxable year beginning after December 31, 2017, but before January 1, 2019, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor and three times the receipts factor, and the denominator of which is five; For a taxable year beginning after December 31, 2018, but before January 1, 2020, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and four times the receipts factor, and the denominator of which is six; For a taxable year beginning after December 31, 2019, but before January 1, 2021, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and five times the receipts factor, and the denominator of which is seven; and For a taxable year beginning after December 31, 2020, but before January 1, 2022, the apportionment formula is a fraction, the numerator of which is the sum of the property factor, the payroll factor, and six times the receipts factor, and the denominator of which is eight. 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. Miscellaneous. 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. If the allocation and apportionment provisions of this regulation do not fairly represent the extent of the taxpayer's business activity in this State, the taxpayer may petition for or the Comptroller may require, in respect to all or any part of the taxpayer's business activity, if reasonable: 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. The receipts factor is a fraction, the numerator of which is the receipts of the taxpayer in this State during the taxable year and the denominator of which is the receipts of the taxpayer within and without this State during the taxable year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for purposes of the numerator. The receipts factor shall include only those receipts described in this regulation and which are included in the computation of the apportionable income base for the taxable year. The numerator of the receipts factor shall include: 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: In this State, Both within and without this State, the numerator of the receipts factor includes receipts from services not otherwise apportioned under this section, if a greater proportion of the income-producing activity is performed in this State than in any other state, based on cost of performance; Receipts from investment assets and activities and trading assets and activities, as described in §G of this regulation. Lease of Tangible Personal Property. 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 from Loans Secured by Real Property. 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. 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. 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. Receipts from Investment Assets and Activities and Trading Assets and Activities. 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 amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements; The amount by which 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, exceed amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from those assets and activities. 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 property factor is a fraction, the numerator of which is the average value of real property and tangible personal property rented to the taxpayer that is located or used within this State during the taxable year, the average value of the taxpayer's real and tangible personal property owned that is located or used within this State during the taxable year, and the average value of the taxpayer's loans and credit card receivables that are located within this State during the taxable year, and the denominator of which is the average value of all the property located or used within and without this State during the taxable year. The property factor shall include only property the income or expenses of which are included, or would have been included if not fully depreciated or expensed, or depreciated or expensed to a nominal amount, in the computation of the apportionable income base for the taxable year. Value of Property Owned by 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 property owned by the taxpayer is computed on an annual basis by adding the value of the property on the first day of the taxable year and the value on the last day of the taxable year and dividing the sum by two. If averaging on this basis does not properly reflect average value, the Comptroller may require averaging on a more frequent basis. The taxpayer may elect to average on a more frequent basis. When averaging on a more frequent basis is required by the Comptroller or is elected by the taxpayer, the same method of valuation shall be used consistently by the taxpayer with respect to property within and without this State and on all subsequent returns unless the taxpayer receives prior permission from the Comptroller or the Comptroller requires a different method of determining average value. Average Value of Real Property and Tangible Personal Property Rented to the Taxpayer. 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. Location of Real Property and Tangible Personal Property Owned by or Rented to the Taxpayer. 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. Location of Loans. Regular Place of Business. A loan is considered to be located within this State if it is properly assigned to a regular place of business of the taxpayer within this State. A loan is properly assigned to the regular place of business with which it has a preponderance of substantive contacts. A loan assigned by the taxpayer to a regular place of business without the State shall be presumed to have been properly assigned if the: Taxpayer has assigned, in the regular course of its business, the loan on its records to a regular place of business consistent with federal or state regulatory requirements; Assignment on its records is based upon substantive contacts of the loan to that regular place of business; and Taxpayer uses those records reflecting assignment of loans for the filing of all state and local tax returns for which an assignment of loans to a regular place of business is required. The presumption of proper assignment of a loan provided in §G(1)(b) of this regulation may be rebutted upon a showing by the Comptroller, supported by a preponderance of the evidence, that the preponderance of substantive contacts regarding the loan did not occur at the regular place of business to which it was assigned on the taxpayer's records. When that presumption has been rebutted, the loan shall then be located within this State if the taxpayer: Had a regular place of business within this State at the time the loan was made; and Fails to show, by a preponderance of the evidence, that the preponderance of substantive contacts regarding the loan did not occur within this State. 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. To determine the state in which the preponderance of substantive contacts relating to a loan have occurred, the facts and circumstances regarding the loan at issue shall be reviewed on a case-by-case basis and consideration shall be given to activities such as the solicitation, investigation, negotiation, approval, and administration of the loan. The terms solicitation, investigation, negotiation, approval, and administration are described in §G(3)(b)—(f) of this regulation. “Solicitation” is either active or passive. Active solicitation occurs when an employee of the taxpayer initiates the contact with the customer. That activity is located at the regular place of business which the taxpayer's employee is regularly connected with or working out of, regardless of where the services of the employee were actually performed. Passive solicitation occurs when the customer initiates the contact with the taxpayer. If the customer's initial contact was not at a regular place of business of the taxpayer, the regular place of business, if any, where the passive solicitation occurred is determined by the facts in each case. “Investigation” is the procedure whereby employees of the taxpayer determine the creditworthiness of the customer as well as the degree of risk involved in making a particular agreement. That activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of the employees were actually performed. “Negotiation” is the procedure whereby employees of the taxpayer and its customer determine the terms of the agreement such as the amount, duration, interest rate, frequency of repayment, currency denomination, and security required. That activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of the employees were actually performed. “Approval” is the procedure whereby employees or the board of directors of the taxpayer make the final determination of whether to enter into the agreement. That activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of the employees were actually performed. If the board of directors makes the final determination, the activity is located at the commercial domicile of the taxpayer. “Administration” is the process of managing the account. This process includes bookkeeping, collecting the payments, corresponding with the customer, reporting to management regarding the status of the agreement, and proceeding against the borrower or the security interest if the borrower is in default. That activity is located at the regular place of business which oversees this activity. For purposes of determining the location of credit card receivables, credit card receivables are treated as loans and are subject to the provisions of §G of this regulation. A loan that has been properly assigned to a state shall, absent any change of material fact, remain assigned to that state for the length of the original term of the loan. Thereafter, the loan may be properly assigned to another state if the loan has a preponderance of substantive contact to a regular place of business there. The payroll factor is a fraction, the numerator of which is the total amount paid in this State during the taxable year by the taxpayer for compensation and the denominator of which is the total compensation paid both within and without this State during the taxable year. The payroll factor shall include only that compensation which is included in the computation of the apportionable income tax base for the taxable year. Payments made to an independent contractor or any other person not properly classifiable as an employee shall be excluded from both the numerator and denominator of the factor. Compensation is paid in this State if any one of the following tests, applied consecutively, is met: 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: The employee's principal base of operations is within this State, There is no principal base of operations in any state in which some part of the services is performed, but the place from which the services are directed or controlled is in this State, or The principal base of operations and the place from which the services are directed or controlled are not in any state in which some part of the service is performed but the employee's residence is in this State. As used in §C(2) of this regulation, “incidental” means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction. Tax-General Article, §§2-103, 10-306.1, and 10-402(d), Annotated Code of Maryland Effective date: January 1, 1998 (24:12 Md. R. 861) Regulation .02B amended effective June 25, 2001 (28:12 Md. R. 1103); April 19, 2010 (37:8 Md. R. 614) Regulation .03 amended effective June 25, 2001 (28:12 Md. R. 1103); May 2, 2022 (49:9 Md. R. 529) Regulation .06C amended effective October 9, 2006 (33:20 Md. R. 1613) In this chapter, the following terms have the meanings indicated. Terms Defined. “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. Subject to the limitations in Regulation .03 of this chapter, an employer may claim a credit equal to 5 percent of the costs incurred by the employer during the taxable year to provide long-term-care insurance as part of an employee benefit package. The credit in Regulation .02 of this chapter may not exceed the lesser of: $5,000; or $100 multiplied by the number of employees covered by long-term-care insurance provided under the employee benefit package. The credit in §A of this regulation and in Regulation .02 of this chapter is not allowed to any employer who claims a credit for the same expenses against the public service company franchise tax. If an employer is an organization that is exempt from taxation under §501(c)(3) or (4) of the Internal Revenue Code, then the credit under this chapter may be taken against the State income tax due on unrelated business taxable income as provided under Tax-General Article, §§10-304 and 10-812, Annotated Code of Maryland. If the credit allowed under this chapter in any taxable year exceeds the total of tax otherwise payable by the employer for that taxable year, the employer may apply the excess as a credit for succeeding taxable years until the earlier of: The full amount of the excess is used; or The expiration of the fifth taxable year after the taxable year in which the costs to provide long-term-care insurance as part of an employee benefit package were incurred. Tax-General Article, §2-103, Annotated Code of Maryland Effective date: January 24, 2000 (27:1 Md. R. 74) Regulation .01B amended effective April 19, 2010 (37:8 Md. R. 614) Regulation .03B amended effective October 9, 2006 (33:20 Md. R. 1613) In this chapter, the following terms have the meanings indicated. Terms Defined. “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: Substituting “Maryland qualified research and development expense” for “qualified research expense”; Substituting “Maryland qualified research and development” for “qualified research”; and Using, instead of the “fixed base percentage”: 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 gross receipts for those years; or For a taxpayer that has fewer than 4 but at least 1 prior taxable year, the percentage as determined under §B(6)(c)(i) of this regulation, determined using the number of immediately preceding taxable years that the taxpayer has. “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 Maryland base percentage is: 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. The Maryland base amount is: 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. Subject to the limitations of this regulation, the taxpayer may claim against the State income tax: 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 Maryland adjusted base amount for a partial or short year taxpayer is the Maryland base amount multiplied by a fraction: 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 Maryland qualified research and development expenses for a partial year taxpayer are: 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 numerator of which is the number of days in the calendar year included in the partial tax year; and The denominator of which is 365. Subject to the limitations of this regulation, the partial or short year taxpayer may claim against the State income tax: 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. Except as provided in §D of this regulation, the total amount of basic credits approved by the Department under Regulations .02C(1) and .03C(1) of this chapter may not exceed $4,000,000 for any calendar year. For any calendar year, if the total amount of basic credits applied for by all business entities is less than $4,000,000, the maximum growth credit specified under §C of this regulation shall be increased for that calendar year by the amount equal to $4,000,000 minus the total amount of the basic credits applied for by all business entities. Except as provided in §B of this regulation, the total amount of growth credits approved by the Department under Regulations .02C(2) and .03C(2) of this chapter may not exceed $4,000,000 for any calendar year. For any calendar year, if the total amount of growth credits applied for by all business entities is less than $4,000,000, the maximum basic credit specified under §A of this regulation shall be increased for that calendar year by the amount equal to $4,000,000 minus the total amount of the growth credits applied for by all business entities. Application. By September 15 of the calendar year following the end of the taxable year in which the Maryland qualified research and development expenses were incurred, a business entity shall submit to the Department a completed application for certification on the form prescribed by the Department. The business entity shall provide the following information: 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 Department may require that the information required by this regulation be verified by an independent auditor retained by the business entity. The Department shall certify to the taxpayer the amount of the basic and growth research and development tax credits approved by the Department for the taxpayer. The Department shall issue this certification by December 15 of the calendar year following the end of the taxable year in which the Maryland qualified research and development expenses were incurred. If the total amount of the credits applied for by all business entities under Regulation .05 of this chapter exceeds the maximum credit amounts available under Regulation .04 of this chapter, then the Department shall approve a credit for each applicant in an amount equal to the product of multiplying the credit applied for by the applicant times a fraction: 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. To claim the credits approved by the Department, a taxpayer shall: File an amended income tax return for the taxable year in which the Maryland qualified research and development expense was incurred; and Attach a copy of the Department's certification to the amended income tax return. Except as provided in §C of this regulation, if the credit allowed in any taxable year exceeds the State income tax for that taxable year, a taxpayer may apply the excess as a credit against the State income tax for succeeding taxable years until the earlier of: 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. A tax credit may not be carried back to a preceding taxable year. If the credit allowed in any taxable year exceeds the State income tax for that taxable year, a small business may claim a refund in the amount of the excess. All members of the same controlled group of corporations, as defined in §41(f) of the Internal Revenue Code, and all entities under common control, whether incorporated or not, shall be treated as a single taxpayer for purposes of these tax credits. The credits allowable to each member shall be determined by multiplying the total credits certified by the Department for the controlled group by a fraction: 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. The computation of the Maryland base amount or the Maryland adjusted base amount shall include all of the qualified research and development expenses of an acquired, consolidated, restructured, or merged entity. In determining the carryover of unused credits and the effect of a merger or acquisition, federal law shall be applied to the corporations as if they were separate corporations. Any provisions under federal law that would allow separate corporations that are merged or acquired to carry forward unused credits on the surviving corporation's returns shall apply to the carryover of this credit for State purposes. Unused Credits. In a transaction involving an asset purchase, unused credits: Do not transfer from the target company to the purchaser; and Remain with the target company. Unused credits may not be sold or purchased. Eligible Expenses. A taxpayer may only claim the credit for Maryland qualified research and development expenses incurred during its taxable year. If the business entity has a short taxable year, only the Maryland qualified research and development expenses incurred during the short taxable year are allowed on the short year return. If the taxpayer incurs Maryland qualified research and development expenses in 2 taxable years during a calendar year, one of which is a short taxable year, the business entity may only claim a credit on the short taxable year return in an amount equal to the total credits certified by the Department multiplied by a fraction: 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. Individuals. To the extent an individual is allowed a credit on the Maryland individual income tax return under Regulation .05 of this chapter, the amount of the credit claimed shall be added to federal adjusted gross income to calculate the individual's Maryland adjusted gross income. Corporations. To the extent a corporation is allowed a credit on its Maryland income tax return under Regulation .05 of this chapter, the amount of the credit claimed shall be added to federal taxable income to calculate the corporation's Maryland modified income. Partnerships, S Corporations, Limited Liability Companies, and Business Trusts. In the case of a subchapter S corporation, partnership, limited liability company, or business trust, the amount of the credits computed for the pass-through entity shall be allocated among the owners as agreed to in writing by the owners. If there is no written agreement governing the allocation of this credit, the credit shall be allocated in the same proportion as other items are allocated for the taxable year. Estates and Trusts. In the case of an estate or trust, the amount of the credits computed for the estate or trust for any taxable year shall be apportioned among the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each. Statements to Partners, Shareholders, Members, and Beneficiaries. 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. Form. A partnership, S corporation, limited liability company, business trust, estate, or trust may elect to use a: Maryland Form 510, Schedule K-1; Modified federal Schedule K-1; or Statement prepared on its own form. Contents. In addition to the contents required under COMAR 03.04.07.04B(2), the statement shall contain the amount of each credit apportioned to the individual partner, shareholder, member, or beneficiary. 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. Year in which Credits are Claimed. The credit apportioned to a taxpayer under this regulation shall be claimed on the taxpayer's Maryland tax return in the taxable year of the taxpayer within which the taxable year of the pass-through entity ends. If the provisions of §41 of the Internal Revenue Code governing the federal research and development tax credit are repealed or terminate, the provisions of this chapter shall continue to operate as if the provisions of §41 of the Internal Revenue Code remain in effect, and the Maryland research and development tax credit under this chapter shall continue to be available. Tax-General Article, §§2-103 and 10-721, Annotated Code of Maryland Effective date: March 4, 2002 (29:4 Md. R. 416) Regulation .01B amended effective March 31, 2014 (41:6 Md. R. 377) Regulation .04 amended effective March 31, 2014 (41:6 Md. R. 377) Regulation .08A amended effective October 9, 2006 (33:20 Md. R. 1613); March 31, 2014 (41:6 Md. R. 377) Regulation .08C adopted effective March 31, 2014 (41:6 Md. R. 377) Regulation .13C amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .14 adopted effective February 9, 2009 (36:3 Md. R. 207) In this chapter, the following terms have the meanings indicated. Terms Defined. “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. To the extent included in federal adjusted gross income, the amount of income derived by an artist from the sale or publication of an artistic work within the district located in the county where the artist owns or rents residential real property and in which the artist conducts a business is allowed as a subtraction from federal adjusted gross income. Income that an artist earns from the sale or publication of artistic work created by the artist within the district and sold within the district qualifies for the subtraction. Income that an artist earns from the sale or publication of artistic work created by the artist within the district and sold outside the district does not qualify for the subtraction. Income that an artist earns from the sale or publication of artistic work created by the artist outside the district and sold within the district does not qualify for the subtraction. Income that an artist earns from the sale or publication of artistic work created by the artist outside the district and sold outside the district does not qualify for the subtraction. Income received by an artist from internet, mail order, and catalog sales of artistic work created within the district by the artist that is shipped from within the district qualifies for the subtraction. Income in the nature of royalties, licenses, or other future revenues from the sale of reproduction or publishing rights does not qualify for the subtraction. To the extent included in federal adjusted gross income, the amount of income derived by an artist from the production or performance of an artistic work within the district located in the county where the artist owns or rents residential real property and in which the artist conducts a business is allowed as a subtraction from federal adjusted gross income. Income that an artist earns from a musical performance, the performance of a play or dance, the showing of a film produced within the district by the artist, or acting in a film within the district qualifies for the subtraction. Income that an artist earns from a musical performance, the performance of a play or dance, the showing of a film, or acting in a film outside the district does not qualify for the subtraction. Income that an artist earns from the creation, choreography, composition, or production of a play, dance, music, or film within the district qualifies for the subtraction. Income that an artist earns from the creation, choreography, composition, or production of a play, dance, music, or film outside the district does not qualify for the subtraction. Income received by an artist from the internet broadcast of an artistic work from within the district qualifies for the subtraction. Income in the nature of royalties, licenses, or other future revenues from the creation or choreography of a play or dance, the composition of music, or the production of a film does not qualify for the subtraction. Except as provided in §B of this regulation, the subtraction provided in Regulations .02 and .03 of this chapter is available only to individuals. The subtraction provided in Regulations .02 and .03 of this chapter is available to a single-member limited liability company, whose sole member is an individual, if the limited liability company is disregarded as an entity separate and apart from its member for federal income tax purposes and as such, the profit or loss of the limited liability company is reflected on the income tax return filed by the member of the limited liability company. An individual claiming the subtraction shall complete Form 502AE and attach the form to the Maryland individual income tax return. Individuals claiming the subtraction shall maintain receipts, books, accounts, and any other documentation relating to the sale, publication, production, or performance of artistic work by an artist. Tax-General Article, §2-103, Annotated Code of Maryland Effective date: November 10, 2003 (30:22 Md. R. 1577) Regulation .01B amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .02A, D amended effective October 9, 2006 (33:20 Md. R. 1613) Regulation .02F amended effective February 9, 2009 (36:3 Md. R. 207) Regulation .03A—C amended effective October 9, 2006 (33:20 Md. R. 1613) Regulation .05A amended effective October 9, 2006 (33:20 Md. R. 1613) Effective Date. This chapter applies to all deeds and other instruments of transfer recorded with the clerk or filed with the Department on or after October 1, 2003. In this chapter, the following terms have the meanings indicated. Terms Defined. “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: In which at least one payment is scheduled after the end of the tax year in which the transfer occurred; and Treated as an installment sale for federal income tax purposes under §453 of the Internal Revenue Code (26 U.S.C. §453). “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. “Net proceeds” means the total sales price paid to the transferor less: Debts of the transferor secured by a mortgage or other lien on the property being transferred that are being paid upon the sale or exchange of the property, except debts incurred in contemplation of sale; and Other expenses of the transferor arising out of the sale or exchange of the property and disclosed on a settlement statement prepared in connection with the sale or exchange of the property, not including adjustments in favor of the transferee. “Net proceeds” does not include adjustments in favor of the transferor that are disclosed on a settlement statement prepared in connection with the sale or exchange of the property. “Nonresident entity” means an entity that: Is not formed under the laws of the State more than 90 days before the date of sale of the property; and Is not qualified by or registered with the Department of Assessments and Taxation to do business in the State more than 90 days before the date of sale of the property. “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: Is formed under the laws of the State more than 90 days before the date of sale of the property; or Is formed under the laws of another state and is qualified by or registered with the Department of Assessments and Taxation to do business in the State more than 90 days before the date of sale of the property. “Transferor” means: The person or entity named as grantor on the deed that records the sale or exchange of the property; or In the case of an LLC, where the sole member is an individual or two married individuals, the entity described in §B(12)(a) of this regulation or the member or members of the LLC. Except as provided in §B of this regulation, a deed or other instrument transferring title may not be: Recorded with the clerk; or Filed with the Department. A deed or other instrument transferring title may be recorded with the clerk or filed with the Department when: 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: A Certificate of Full or Partial Exemption (Form MW506E) issued by the Comptroller in accordance with Regulation .04 of this chapter; and If a partial exemption is issued by the Comptroller, payment in the amount shown as due on the Certificate of Full or Partial Exemption; The transfer is: A transfer pursuant to a foreclosure of a mortgage, deed of trust, or other lien instrument; or A transfer pursuant to a deed in lieu of foreclosure; The transferor is an agency or instrumentality of the United States; The transferor is: The State; A unit of the State; or A political subdivision of the State; or 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. The transferor may file an Application for Certificate of Full or Partial Exemption (Form MW506AE) with the Comptroller. The transferor shall: 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 Comptroller may issue a Certificate of Full or Partial Exemption for any of the following reasons: 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. The Comptroller's decision to issue or deny a Certificate of Full or Partial Exemption and the determination of the amount of tax to be withheld if a partial exemption is granted are final and not subject to appeal. Like-Kind Exchange. 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: The total payment; or The taxable boot. Installment Sale. 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. Unless the transfer is fully exempt from the withholding requirements of this chapter, the transferee or real estate reporting person shall: 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. A Return of Income Tax Withholding for Nonresident Sale of Real Property (Form MW506NRS) is required for each transferor for each transfer in which tax was withheld. If a payment is required pursuant to Regulation .03B(1) of this chapter, the person presenting the deed or other instrument of transfer shall present the following additional documents to the clerk or the Department: 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 Return of Income Tax Withholding for Nonresident Sale of Real Property required under §A(1) of this regulation shall be signed under oath by: The transferor of the property; An agent of the transferor; or The real estate reporting person. The clerk or the Department shall review the documents presented for recordation or filing for compliance with the requirements of this chapter. If applicable, the clerk or the Department shall collect any tax due on the transfer. On or before the 21st day of the month following the month in which the clerk or the Department receives the payment of tax under Regulation .03B(1) of this chapter, the clerk or the Department shall: Pay over to the Comptroller the amount of tax collected; Submit to the Comptroller: The Monthly Reconciliation Report for Sales of Real Property by Nonresidents (Form MW508NRS); The Sales of Real Property by Nonresidents Schedule of Withholding Receipts that includes the: Name of the transferor; Address of the transferor; Social Security number or federal employer identification number of the transferor; Validation number of the transfer; and Amount of tax collected; and Copy A of each Return of Income Tax Withholding for Nonresident Sale of Real Property. An individual or a corporation that has paid withholding tax in excess of the amount owed may file an Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents (MW506R) with the Comptroller 60 days after the date the tax was paid to the clerk or the Department, but not later than December 1 of the calendar year in which the tax was paid. When the transferor of real property is a pass-through entity: 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: The member or shareholder is the sole member or shareholder of the transferor pass-through entity; or The members or shareholders is one of two members or shareholders and the two members or shareholders are a married couple. 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. An individual or a corporation shall attach to the 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. The Comptroller may issue a tentative refund of withholding for any of the reasons found in Regulation .04C of this chapter. The Comptroller's decision to deny or grant in part an Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents is final and not subject to appeal. The filing of the Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents does not relieve an individual or a corporation of the requirement to file a State income tax return. Tax-General Article, §§2-103 and 10-912, Annotated Code of Maryland Effective date: Regulations .01—.08 adopted as an emergency provision effective October 1, 2003 (30:22 Md. R. 1574); emergency status extended at 31:22 Md. R. 1594; emergency status expired March 31, 2005 Regulations .01—.08 adopted as an emergency provision effective April 1, 2005 (32:11 Md. R. 981); adopted permanently effective July 18, 2005 (32:14 Md. R. 1275) Regulation .01 amended effective October 22, 2007 (34:21 Md. R. 1913) Regulation .02B amended effective October 22, 2007 (34:21 Md. R. 1913); May 2, 2022 (49:9 Md. R. 529) Regulation .03B amended effective March 21, 2011 (38:6 Md. R. 393) Regulation .04C amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .08 amended effective May 2, 2022 (49:9 Md. R. 529) Regulation .08A amended effective October 22, 2007 (34:21 Md. R. 1913); April 19, 2010 (37:8 Md. R. 614); July 8, 2013 (40:13 Md. R. 1073) Effective date: October 22, 2007 (34:21 Md. R. 1913) Regulation .01B amended effective April 19, 2010 (37:8 Md. R. 614) Regulation .02B amended effective April 19, 2010 (37:8 Md. R. 614) Chapter repealed effective May 2, 2022 (49:9 Md. R. 529) In this chapter, the following terms have the meanings indicated. Terms Defined. “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: Strong centralized management; Functional integration; and Attainment of operational economies of scale. “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: Corporations organized or incorporated in the United States, including those corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in IRC Section 936 (26 U.S.C. 936); and Corporations organized or incorporated outside of the United States whose business activity in the United States is 20 percent or more of the corporation's total business activity. Foreign corporations that conduct 20 percent or more of their business activity in the United States, as measured by the average of the property and payroll factors, shall be included 100 percent in a water's edge combined report. Any business activity in Maryland subjects a foreign corporation to Maryland income tax. The threshold test for purposes of combined reporting determines whether the foreign corporation is a member of a unitary group. The reports described in this regulation shall be submitted electronically, using the form and instructions available on the Comptroller's website at www.marylandtaxes.com. Every corporate group shall file the following reports with the Comptroller: 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 reports required hereunder shall be submitted for all taxable years beginning after December 31, 2005 and before January 1, 2011, as follows: 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. Every report required under this regulation shall be made under oath and signed in the manner required for the signature of a tax return filed under Tax-General Article, §10-804, Annotated Code of Maryland. Failure to File Required Reports. 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: Up to $5,000 per day for each of the first 30 days following the due date during which a report has not been filed; and Up to $10,000 per day for each day after the first 30 days that a report has not been filed. The Comptroller may, for any reason, issue an order abating or decreasing the penalty established under this section. Failure to File Reports Accurately. 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: Be deemed to have failed to file the required report; and Be subject to the penalties set forth in §A of this regulation. 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. All penalties assessed hereunder are collectible from all members of the corporate group. All penalties assessed hereunder may be appealed by the corporate group by seeking revision with the Comptroller pursuant to Tax-General Article, §13-508, Annotated Code of Maryland. All statutes and regulations applicable to the informal hearing procedures set forth in Tax-General Article, §13-508, Annotated Code of Maryland shall apply. After the Comptroller's hearing officer issues a notice of final determination, the provisions of Maryland law regarding administrative and judicial review shall apply. If no timely appeal is filed to the imposition of a penalty or if the taxpayer waives its right to an appeal of the imposition of a penalty, the Comptroller may issue an order abating or decreasing the penalty assessed to correct an erroneous assessment as contemplated in Tax-General Article, §13-509, Annotated Code of Maryland. Tax-General Article, §§2-103 and 10-804.1, Annotated Code of Maryland Effective date: Regulations .01—.03 adopted as an emergency provision effective October 14, 2008 (35:23 Md. R. 2010); emergency status expired November 30, 2008 Regulations .01—.03 adopted effective January 12, 2009 (36:1 Md. R. 20) In this chapter, the following term has the meaning indicated. Term Defined. “Business tax credit” means: 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. Any taxpayer claiming a business tax credit, an excess carryover of a business tax credit, or a recapture of a business tax credit shall claim the credit on an electronically filed original or amended Maryland income tax return. Any taxpayer claiming any business tax credit requiring certification, any excess carryover of a business tax credit requiring certification, or any recapture of a business tax credit requiring certification shall electronically file the required certification and any required attachments for the credit as a binary attachment with the electronically filed original or amended Maryland income tax return. An organization exempt from taxation under §501(c)(3) or (4) of the Internal Revenue Code claiming a credit against the payment to the Comptroller of taxes that the organization is required to withhold from the wages of employees is exempt from the electronic filing requirements under this chapter. A taxpayer claiming a business tax credit against fiduciary income tax is exempt from the electronic filing requirements under this chapter. An individual claiming the Sustainable Communities Tax Credit is exempt from the electronic filing requirements under this chapter. Tax-General Article, §§2-103 and 10-804, Annotated Code of Maryland Effective date: January 20, 2014 (41:1 Md. R. 12) Regulation .01B amended effective May 2, 2022 (49:9 Md. R. 529)