# COMAR Title 03 — Comptroller of the Treasury

## Subtitle 04 — Income Tax

### Chapter 14 — Corporate Income Tax Reporting

**Authority:** Tax-General Article, §§2-103 and 10-804.1, Annotated Code of Maryland

**Administrative History:** Effective date:

**Administrative History:** Regulations .01—.03 adopted as an emergency provision effective October 14, 2008 (35:23 Md. R. 2010); emergency status expired November 30, 2008

**Administrative History:** Regulations .01—.03 adopted effective January 12, 2009 (36:1 Md. R. 20)

#### Regulation .01 Definitions.

*COMAR 03.04.14.01*

A. In this chapter, the following terms have the meanings indicated.

B. Terms Defined.

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

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

  (3) “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.

  (4) “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.

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

  (6) “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:

    (a) Strong centralized management;

    (b) Functional integration; and

    (c) Attainment of operational economies of scale.

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

    (a) 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

    (b) 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.

#### Regulation .02 Reports Required.

*COMAR 03.04.14.02*

A. 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.

B. Every corporate group shall file the following reports with the Comptroller:

  (1) 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;

  (2) 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;

  (3) 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

  (4) 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.

C. The reports required hereunder shall be submitted for all taxable years beginning after December 31, 2005 and before January 1, 2011, as follows:

  (1) 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

  (2) 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.

D. 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.

#### Regulation .03 Penalties.

*COMAR 03.04.14.03*

A. Failure to File Required Reports.

  (1) 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.

  (2) The penalties to be assessed are:

    (a) 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

    (b) Up to $10,000 per day for each day after the first 30 days that a report has not been filed.

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

B. Failure to File Reports Accurately.

  (1) 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.

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

  (3) 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.

  (4) 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:

    (a) Be deemed to have failed to file the required report; and

    (b) Be subject to the penalties set forth in §A of this regulation.

  (5) 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.

C. All penalties assessed hereunder are collectible from all members of the corporate group.

D. 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.

E. All statutes and regulations applicable to the informal hearing procedures set forth in Tax-General Article, §13-508, Annotated Code of Maryland shall apply.

F. After the Comptroller's hearing officer issues a notice of final determination, the provisions of Maryland law regarding administrative and judicial review shall apply.

G. 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.