Maryland features a fair and consistent tax structure. But don't just take our word for it. According to a study by the Anderson Economic Group, Maryland has the seventh lowest burden of state and local taxes on businesses based on the amount of taxes paid directly by businesses compared to business’ pre-tax operating margin..
The state also offers a variety of tax incentives, including ones geared toward life sciences and technology, to help businesses grow and prosper. See the
Funding and Incentives section for more details on tax incentive programs. In addition to these tax exemptions and credits, the state has:
- No gross receipts tax on manufacturers
- No corporate franchise tax
- No unitary tax on profits
- No income tax on foreign dividends (if the corporation owns 50% or more of the subsidiary)
- No tax on intangible property
- No separate school taxes
Comptroller of Maryland's web site has information about tax regulations, withholding, tax forms, unclaimed property, as well as numerous fiscal reports. New businesses can register through the
Maryland State Combined Registration Online Application.
For information on property tax rates, exemptions, credits and forms, visit the
State Department of Assessments and Taxation, or DAT. The agency administers and enforces the property assessment and property tax laws throughout the state.
Every corporation and association having income allocable to the State of Maryland is required to file an income tax return with the state. The corporate tax rate is 8.25 percent of the net income allocable to Maryland. When compared to the top rates of surrounding and competing states, Maryland compares favorably, with a lower top rate than California, Illinois, Delaware, New Jersey and Pennsylvania.
Note: Top rate for states with multiple brackets.
Tax aficionados, read on for additional details:
- Depreciation allowances in the state follow the federal Modified Accelerated Cost Recovery System.
- A corporation, in computing Maryland taxable income, may deduct from federal net taxable income dividends received from foreign subsidiaries, if the corporation owns 50 percent of more of the foreign subsidiary.
- Corporations whose trade or business is carried on partly within the state generally allocate business income to Maryland through the use of a three-factor, double-weighted sales factor formula of sales, property and payroll.
- Apportionment for manufacturers uses a single sales factor so that income tax liability is based solely on their percentage of in-state sales.
- Apportionment for services companies is based on the three-factor formula, and service receipts are sourced by the location of the taxpayer's customer, as opposed to the state in which the taxpayer incurred the greatest cost in providing the service.
- If the formula used produces an inequitable result, the State Comptroller has the authority to alter it and devise a more equitable basis for taxation.
Non Corporate Business Income Tax
Subchapter S Corporations, limited liability corporations, partnerships and sole proprietorships report income on their personal income tax returns.
Personal Income Tax
The state requires all employers to withhold both state and local income taxes. Maryland uses federal adjusted gross income as the starting point for determining taxable income for the state. The state personal income tax is a graduated rate, peaking at 5.75 percent on taxable income over $300,000 for joint filers and $250,000 for single filers. Below find local personal income tax rates from our Data Explorer; and for more details visit the Comptroller of Maryland's website (note: 2013 state tax rates did not change for 2014).
Real Property taxes
Real property in Maryland is appraised at market value and taxed on assessed value. The assessment is full value, or 100 percent of market value. Both state and local real property taxes are applied to assessed value. Municipalities may also tax real property, and county rates may vary between incorporated and unincorporated areas. For details visit the DAT website.
Business Personal Property
There is no state tax on business personal property in Maryland. In addition, Caroline, Frederick, Garrett, Kent, Queen Anne's and Talbot counties do not levy personal property taxes on ordinary business. The remaining counties and the City of Baltimore levy taxes on the depreciated value of business personal property, which for most property is 10 percent annually to a minimum of 25 percent of original cost. Certain personal property, such as data processing computer equipment, depreciates more rapidly. Visit DAT to learn the depreciation categories and rates. Municipalities may also tax business personal property, and county rates may vary between incorporated and unincorporated areas. In addition, most counties and many municipalities offer full or partial exemptions for certain categories of property including manufacturing and R&D machinery and equipment, manufacturing and R&D inventory and commercial inventory. For details visit the DAT website for rates and exemptions .
Sales and Use Taxes
The Maryland sales and use tax rate for certain services stands at six percent, unless a specific exemption is provided. Maryland's counties or municipalities do not levy general sales or use taxes. Major business-oriented exemptions from the tax include sales of the following:
- Capital and noncapitalized manufacturing machinery and equipment
- Safety and quality control equipment used on a production activity site; and equipment used to move a finished product on the production site
- Tangible personal property consumed directly in manufacturing or testing of finished products
- Fuels used in manufacturing, except those used to cool, heat and light the manufacturing facility
- Items for resale and tangible personal property to be incorporated in other tangible personal property manufactured for resale
- Computer programs reproduced for sale or incorporated in whole or in part into another computer program intended for sale
- Customized computer software
- Equipment and materials used or consumed in research and development, including testing of finished products
- Aircraft, vessels, railroad rolling stock, and motor vehicles used principally in the movement of passengers or freight in interstate and foreign commerce
- Certain end-item testing equipment used to perform a contract for the U.S. Department of Defense and transferred to the federal government
- Items and services purchased or rented for film and video productions made in Maryland for commercial distribution; includes short-term rental of vehicles used in film production activities
Get additional information on sales and use taxes from the Comptroller of Maryland.