Maryland's Department of Commerce sets new R&D tax credit regulations

House Bill 498, introduced in Maryland on January 31, 2025, aims to extend and refine the state's research and development (R&D) tax credit program. The bill seeks to align Maryland's tax incentives with federal standards, specifically those outlined in Section 41 of the Internal Revenue Code, which governs the federal R&D tax credit.

The primary provisions of House Bill 498 include the establishment of regulations by the Department of Commerce and the Comptroller to define when research or development is considered to be conducted within the state. These regulations will take into account various factors, such as the location of services performed, the residence of service providers, and the consumption of supplies used in R&D activities. Additionally, the bill stipulates that if the federal R&D tax credit is repealed or terminated, Maryland's tax credit will remain in effect, ensuring continued support for local innovation.

A significant aspect of the bill is its sunset provision, which states that the tax credit will not be available for taxable years beginning after December 31, 2030. Taxpayers whose fiscal years do not align with the calendar year will only be eligible for a prorated credit for expenses incurred in 2030.

The introduction of House Bill 498 has sparked discussions among lawmakers and industry stakeholders. Proponents argue that the bill will bolster Maryland's position as a hub for biotechnology and innovation, potentially attracting more companies to the state and fostering economic growth. Critics, however, express concerns about the long-term sustainability of such tax incentives and their impact on state revenue.

The implications of House Bill 498 are significant, as it not only seeks to enhance Maryland's competitive edge in the R&D sector but also raises questions about the future of state tax credits in light of potential federal changes. As the bill progresses through the legislative process, its outcomes will be closely monitored by businesses and policymakers alike, with the potential to shape the landscape of research and development funding in Maryland for years to come.