Chapter 12. Cellulosic Ethanol Technology Research and Development Tax Credit

Requirements for a taxpayer to receive a certificate allowing it to claim a credit against the State income tax for Maryland qualified cellulosic ethanol research and development expenses; and

Procedures that will be used by the Department of Commerce to:

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

Terms Defined.

The Maryland qualified research and development expenses for a partial year taxpayer are:

The partial or short year taxpayer may claim a credit against the State income tax in the amount of 10 percent of the Maryland qualified research and development expenses paid or incurred by the taxpayer during the taxable year.

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 that paid or incurred Maryland qualified research and development expenses shall submit to the Department a completed application for certification on the form prescribed by the Department.

Cellulosic Ethanol Technology Research and Development Tax Credit Application. Each application shall include the following information:

The Department may require that the information required by §B of this regulation be verified by an independent auditor retained by the business entity at the expense of the business entity.

The Department shall certify to the taxpayer or the business entity the amount of the credit approved by the Department for the business entity. The Department shall issue the certification, in a form approved by the Secretary, 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 exceeds the maximum credit amounts available under Regulation .06 of this chapter, then the Department shall approve a credit for each business entity in an amount equal to the product of multiplying the credit applied for by the business entity times a fraction:

The determination of the Department to grant or to deny an application for a certificate is final.

All the cellulosic ethanol technology research or development activities conducted, performed, or carried on by or on behalf of the business entity for which the business entity applies for a credit must have been performed, conducted, or carried on in the State.

If the business entity contracts or makes arrangements of any kind, however styled, for the performance, conduct, or carrying on of cellulosic ethanol technology research and development activities on behalf of the business entity by third parties, the person or firm performing, conducting, or carrying on cellulosic ethanol technology research or development activities for or on behalf of the business entity and for which the business entity applies for a credit must have performed, conducted, or carried on all of those cellulosic ethanol technology research or development activities in the State.

All supplies used in the cellulosic ethanol technology research and development activities for or on behalf of the business entity for which the business entity applies for a credit must have been consumed in the State.

Business entities making application for a tax credit shall maintain accounting books, records, and systems that account for cellulosic ethanol technology research and development activities and Maryland qualified research and development expenses in accordance with:

The Department shall apply a facts and circumstances analysis to determine whether a business entity has conducted, performed, or carried on in the State all the cellulosic ethanol technology research and development activities for which the business entity applies for a credit. The Department's determination will be based in substantial part on the statements and documents of the business entity contained in or appended to its application submitted in accordance with Regulation .07 of this chapter.

For purposes of determining eligibility for certification of tax credits, the Department shall consider the following factors:

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.

If the credit allowed in any taxable year exceeds a taxpayer's State income tax for that taxable year, the taxpayer may apply the excess as a credit against the State income tax for succeeding taxable years until the earlier of:

A tax credit may not be carried back to a preceding taxable year.

All members of the same controlled group of corporations, as defined in 26 U.S.C. §41(f), and all entities under common control, whether incorporated or not, shall be treated as a single taxpayer for purposes of the tax credit.

The credit allowable to each member shall be determined by multiplying the total credits certified by the Department for the controlled group by a fraction:

The computation of the credit 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.

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 business entity incurs Maryland qualified research and development expenses in 2 taxable years during a calendar year, one of which is a short taxable year, the taxpayer 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:

Individuals. To the extent an individual is allowed a credit on the Maryland individual income tax return, 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, 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 credit 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 the 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 beneficiary of the estate or trust under the controlling instrument or rule of law.

Statements to Partners, Shareholders, Members, and Beneficiaries.

Year in which Credit is Claimed. The credit apportioned to a taxpayer under §§A—C of 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.