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Maryland Cybersecurity Investment Incentive Tax Credit

The application process for qualifying a company for the Maryland Cybersecurity Investment Incentive Tax Credit opened on Monday, December 9, 2013.

Companies can now file an initial application with the Maryland Department of Business and Economic Development (DBED) to start the certification process to become a Qualified Maryland Cybersecurity Company (QMCC). Companies certified by DBED can then become eligible for a Maryland income tax credit for qualifying investments made in the company for the 2014 tax year.

What is the Credit and How Much Are You Entitled to?
The credit is a refundable incentive based income tax credit for the investment in a QMCC for tax years beginning on or after January 1, 2014 and before January 1, 2019. The credit is equal to 33 percent (not to exceed $250,000) of an investment in the QMCC made by a qualifying investor. Total credits approved per QMCC cannot exceed 15% of the total program appropriations for the credit year ($450,000 for the 2014 FY).

What is a QMCC?
A QMCC is an entity organized for profit that owns or has properly licensed proprietary technology that detects or prevents activity intended to result in unauthorized access to, exfiltration of, manipulation of or impairment to the integrity, confidentiality, or availability of an information system or information stored on or transiting an information system. To become certified as a QMCC the following additional requirements must be met:

  • Headquarters and base of operations are located in Maryland
  • Has not participated in the tax credit program for more than 1 prior fiscal year
  • Has been in business no longer than 5 years
  • Has aggregate capitalization of at least $100,000
  • Has fewer than 50 full-time employees
  • Is not publicly traded
  • Is in good standing
  • Is current in the payment of all tax obligations to the state or unit thereof
  • Not in default under the terms of any contract with the state or unit thereof

Who is a Qualified Investor?
A qualified investor is any individual or entity that invests at least $25,000 in a QMCC and has an income tax return filing requirement in any jurisdiction. However, investors cannot be a qualified retirement plan, IRA or other plan subject to ERISA.
The qualified investor cannot own or control more than 25% of the QMCC after the investment is made. Additionally, requirements similar to those that apply to QMCCS (in good standing, current on all tax obligations of a state and not in default under contracts) apply to the investor.

What is a Qualifying Investment?
A qualifying investment includes an investment made in cash or cash equivalents in exchange for an ownership interest (stock, membership/partnership interest or other equity interest) in a QMCC. The investment does not include debt.

Obtaining the Credit
Prior to the electronic application system opening on January 13, 2014, a qualifying company can submit a paper application to DBED with all required attachments. This will include the Form B and any applicable investor forms which can be obtained at the following link.

http://www.choosemaryland.org/businessresources/Pages/CybersecurityInvestmentIncentiveT axCredit.aspx

The company will receive a user name and reference number that will be used to complete the electronic application which will open January 13, 2014. The credit is allocated on a first-come, first-serve basis which will be determined based on when the electronic application is submitted (not the paper application submitted prior to January 13th).

To ensure receipt of a user name and password before January 13, 2014, the paper application must be received by DBED no later than January 7, 2014.

The final steps of the process will include:

  • The investor filing an application with DBED at least 30 days before but no more than 60 days prior to making the qualifying investment;
  • Investor making the qualifying investment no more than 30 days from the date DBED provides the initial tax credit certificate to the QMCC; and
  • Within 10 days of receiving the qualifying investment, the QMCC must notify DBED in writing of such investment.

During the credit application and investment approval process, it is imperative the company and investor follow the procedures established under the program. Failure to comply can result in the removal of any allocated credits or rejection from being eligible under the program.

Certain recapture provisions apply to both the investor and the QMCC should a recapture event occur within the first three years of receiving the credit.