Chapter 08. Banks and Similar Institutions
Regulation .01 Scope.LinkCopy Citation
This chapter provides specific guidance to banking and similar institutions subject to the Maryland income tax laws.
Regulation .02 Definitions.LinkCopy Citation
A.
In this chapter, the following terms have the meanings indicated.
B.
Terms Defined.
(1)
Banking institution.
(a)
“Banking institution” means a:
(i)
Commercial bank;
(ii)
Savings bank, except a savings bank chartered by the Office of Thrift Supervision;
(iii)
Trust company;
(iv)
Company that substantially competes with national banks in the State;
(v)
Credit company;
(vi)
Finance company, other than a finance company that makes loans only to farmers for agricultural purposes;
(vii)
International banking facility;
(viii)
Loan company;
(ix)
Mortgage company;
(x)
Safe-deposit company; or
(xi)
Savings and loan association.
(b)
“Banking institution” does not include:
(i)
A company licensed under the federal Small Business Investment Act of 1958;
(ii)
A corporation that elects to be taxed as a small business corporation under Subchapter S of the Internal Revenue Code;
(iii)
An entity that is a real estate mortgage conduit as defined in the Internal Revenue Code; or
(iv)
A limited liability company.
(2)
“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.
(3)
“Borrower or credit card holder located in this State” means a:
(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
(b)
Borrower that is not engaged in a trade or business or a credit card holder whose billing address is in this State.
(4)
Commercial Domicile.
(a)
“Commercial domicile” means:
(i)
The headquarters of the trade or business; that is, the place from which the trade or business is principally managed and directed; or
(ii)
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.
(b)
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.
(5)
“Compensation” means wages, salaries, commissions, and any other form of remuneration paid to employees for personal services.
(6)
“Credit card” means a credit, debit, travel, or entertainment card.
(7)
“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.
(8)
“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.
(8-1)
“Financial institution holding company” means a financial institution whose:
(a)
Only activities are the maintenance and management of intangible investments, and the collection and distribution of income from intangible investments; and
(b)
Principal income is interest and dividends from one or more of the entities described in §B(1)(a)(v)—(xi) of this regulation.
(9)
Gross Rents.
(a)
“Gross rents” means the actual sum of money or other consideration payable for the use or possession of property.
(b)
“Gross rents” includes, but is not limited to:
(i)
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;
(ii)
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
(iii)
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.
(c)
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.
(d)
“Gross rents” does not include:
(i)
Reasonable amounts payable as separate charges for water and electric service furnished by the lessor;
(ii)
Reasonable amounts payable as service charges for janitorial services furnished by the lessor;
(iii)
Reasonable amounts payable for storage, if the amounts are payable for space not designated and not under the control of the taxpayer; and
(iv)
That portion of any rental payment which is applicable to the space subleased from the taxpayer and not used by it.
(10)
Loan.
(a)
“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.
(b)
“Loan” includes participations, syndications, and leases treated as loans for federal income tax purposes.
(c)
“Loan” does not include:
(i)
Properties treated as loans under §595 of the Internal Revenue Code as in effect January 1, 1996;
(ii)
Futures or forward contracts;
(iii)
Options;
(iv)
Notional principal contracts such as swaps;
(v)
Credit card receivables, including purchased credit card relationships;
(vi)
Non-interest-bearing balances due from depository institutions;
(vii)
Cash items in the process of collection;
(viii)
Federal funds sold;
(ix)
Securities purchased under agreements to resell;
(x)
Assets held in a trading account;
(xi)
Securities;
(xii)
Interests in a REMIC, as defined in §860D of the Internal Revenue Code, or other mortgage-backed or asset-backed security; and
(xiii)
Other similar items.
(11)
“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.
(12)
“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.
(13)
“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.
(14)
Principal Base of Operations.
(a)
“Principal base of operations” with respect to transportation property means the place from which that property is regularly directed or controlled.
(b)
“Principal base of operations” with respect to an employee means the place from which the employee regularly:
(i)
Starts work and to which the employee customarily returns in order to receive instructions from the employer;
(ii)
Communicates with customers or other persons; or
(iii)
Performs any other functions necessary to the exercise of the employee's trade or profession at some other point or points.
(15)
Real Property Owned.
(a)
“Real property owned” means real property:
(i)
On which the taxpayer may claim depreciation for federal income tax purposes; or
(ii)
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.
(b)
“Real property owned” does not include property acquired in lieu of or pursuant to a foreclosure.
(16)
“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.
(17)
“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.
(18)
Tangible Personal Property Owned.
(a)
“Tangible personal property owned” means tangible personal property:
(i)
On which the taxpayer may claim depreciation for federal income tax purposes; or
(ii)
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.
(b)
“Tangible personal property owned” does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.
(19)
“Taxpayer” means a banking institution engaged in or conducting business in this State.
(20)
“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.
Regulation .03 Apportionment and Allocation.LinkCopy Citation
A.
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.
B.
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).
C.
The apportionment formulas described in §D of this regulation are required only on original returns filed on or after this regulation's effective date.
D.
Apportionment Formula.
(1)
A banking institution operating as a unitary business within and outside the State shall, for tax years beginning before December 31, 2021, use a three-factor formula of property, payroll, and receipts to determine the part of the banking institution's Maryland modified income derived from or reasonably attributable to trade or business carried on in the State, as follows:
(a)
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;
(b)
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;
(c)
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;
(d)
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
(e)
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.
(2)
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.
E.
Miscellaneous.
(1)
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.
(2)
A financial institution holding company shall apportion all other income to this State through application of this chapter.
F.
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:
(1)
Separate accounting;
(2)
The exclusion of any one or more of the factors;
(3)
The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this State; or
(4)
The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.
Regulation .04 Receipts Factor.LinkCopy Citation
A.
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.
B.
The numerator of the receipts factor shall include:
(1)
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;
(2)
Receipts from the lease of tangible personal property, as described in §C of this regulation;
(3)
Interest from loans secured by real property, as described in §D of this regulation;
(4)
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;
(5)
Net gains from the sale of loans, as described in §E of this regulation;
(6)
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;
(7)
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;
(8)
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;
(9)
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;
(10)
Loan servicing fees, as described in §F of this regulation;
(11)
Receipts from services not otherwise apportioned under this section if the service is performed:
(a)
In this State,
(b)
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;
(12)
Receipts from investment assets and activities and trading assets and activities, as described in §G of this regulation.
C.
Lease of Tangible Personal Property.
(1)
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.
(2)
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.
D.
Interest from Loans Secured by Real Property.
(1)
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.
(2)
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.
E.
Net Gains from the Sale of Loans.
(1)
Net gains from the sale of loans includes income recorded under the coupon stripping rules of §1286 of the Internal Revenue Code.
(2)
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.
(3)
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.
F.
Loan Servicing Fees.
(1)
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.
(2)
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.
(3)
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.
G.
Receipts from Investment Assets and Activities and Trading Assets and Activities.
(1)
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:
(a)
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;
(b)
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.
(2)
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.
(3)
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.
(4)
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.
(5)
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.
(6)
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.
Regulation .05 Property Factor.LinkCopy Citation
A.
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.
B.
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.
C.
Value of Property Owned by the Taxpayer.
(1)
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.
(2)
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.
(3)
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.
D.
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.
E.
Average Value of Real Property and Tangible Personal Property Rented to the Taxpayer.
(1)
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.
(2)
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.
F.
Location of Real Property and Tangible Personal Property Owned by or Rented to the Taxpayer.
(1)
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.
(2)
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.
G.
Location of Loans.
(1)
Regular Place of Business.
(a)
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.
(b)
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:
(i)
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;
(ii)
Assignment on its records is based upon substantive contacts of the loan to that regular place of business; and
(iii)
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.
(c)
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:
(i)
Had a regular place of business within this State at the time the loan was made; and
(ii)
Fails to show, by a preponderance of the evidence, that the preponderance of substantive contacts regarding the loan did not occur within this State.
(2)
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.
(3)
Determination of Preponderance of Substantive Contacts.
(a)
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.
(b)
“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.
(c)
“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.
(d)
“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.
(e)
“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.
(f)
“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.
H.
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.
I.
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.
Regulation .06 Payroll Factor.LinkCopy Citation
A.
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.
B.
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.
C.
Compensation is paid in this State if any one of the following tests, applied consecutively, is met:
(1)
The employee's services are performed entirely within this State;
(2)
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
(3)
The employee's services are performed both within and without this State, and:
(a)
The employee's principal base of operations is within this State,
(b)
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
(c)
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.
D.
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.
Chapter annotations
Authority: Tax-General Article, §§2-103, 10-306.1, and 10-402(d), Annotated Code of Maryland
History: Effective date: January 1, 1998 (24:12 Md. R. 861)
History: Regulation .02B amended effective June 25, 2001 (28:12 Md. R. 1103); April 19, 2010 (37:8 Md. R. 614)
History: Regulation .03 amended effective June 25, 2001 (28:12 Md. R. 1103); May 2, 2022 (49:9 Md. R. 529)
History: Regulation .06C amended effective October 9, 2006 (33:20 Md. R. 1613)