Chapter 03. Corporations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

To claim a net operating loss carryback:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Domicile.

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

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

Services to Regulated Investment Companies.

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

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

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

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

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

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

Separate accounting may be allowed only if:

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

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

Sales Factor.

Property Factor.

Payroll Factor.

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

This regulation applies to:

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

Film.

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

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

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

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

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

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

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

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

The value of films:

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

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

Denominator.

Numerator.

Denominator.

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

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

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

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

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

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

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

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

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

Revocation of Election.

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

Manufacturing Corporation.

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

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

Examples.

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

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

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

NAICS Code.

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

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

Terms Defined.

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

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