When you set up a business, create jobs and make investments in certain areas in Maryland designated as Enterprise Zones, you can qualify for significant state income and property tax credits. This Enterprise Zone program is a joint effort between the State of Maryland and local governments to provide tax incentives to businesses and property-owners to stimulate some of the state’s most economically distressed communities.
Twenty-eight enterprise zones are located in 14 jurisdictions throughout Maryland. You can find a map of these Enterprise Zones on the Choose Maryland website. There are also Focus Areas within the Baltimore City, Prince George’s County and Takoma Park/Long Branch enterprise zones. There are additional tax credits for hiring and investing in these areas.
There are two types of credits for Enterprise Zones: a property tax credit for making investments in construction and real property improvements, and an income tax credit for hiring new employees.
Property tax credit
When you set up a business in an Enterprise Zone in Maryland you can claim a ten-year credit against local property taxes on a portion of the investments you make to construct or renovate a building or to expand an existing facility.
The credit is 80% for the first five years and then decreases by 10% for each subsequent year, reaching 30% for the tenth and final year. If your business is in a Focus Area, the property tax credit is 80% for ten years and does not decline as it does with the standard Enterprise Zone benefit. In a Focus Area, you can also claim a ten-year, 80% credit against local property taxes on new investments in personal property such as machinery and equipment.
Employment tax credit
When you create new jobs in an Enterprise Zone you can claim a general, one-time credit of $1,000 for each new employee. When you hire economically disadvantaged employees, the credit is $6,000 per employee distributed over three years: $3,000 the first year, $2,000 the second year and $1,000 the third year. In a Focus Area, the general credit is a one-time credit of $1,500 for each new employee. For each economically disadvantaged employee in a Focus Area the credit is $9,000 spread over three years: $4,500 the first year, $3,000 the second year and $1,500 the third year.
To qualify for the general credit, the employee must be hired after you locate your business in the Enterprise Zone, or when the zone was created, if that is later. The employee must work at least 35 hours per week for 6 months before or during the tax year you claim the credit. At least half of the employee’s work time must be in the Enterprise Zone or in an activity related to the zone. Your overall number of full-time positions must increase by the number of credits you claim. You can claim a credit for rehiring an employee who has been laid off a year or more. And you must pay the employee at least 150% of the federal minimum wage.
In order to qualify for the additional credit for hiring an economically disadvantaged employee, your business needs to obtain certification of the employee from the Maryland Department of Labor, Licensing and Regulation. In order to take advantage of the full credit, the economically disadvantaged employee must remain in the position for three years. But if he or she leaves the company and is replaced by another employee who is certified as disadvantaged, you can claim the remainder of the credit as if the original employee had remained on the job.
If your relocate your business from one site in Maryland to an Enterprise zone, your base employment stays the same as it was at your previous site. But the new employees you hire in the Enterprise Zone qualify you for the credit. If you move into a Maryland Enterprise Zone from outside the state, you are considered a new Maryland business and all your employees could be eligible for the credit.
There is no limit on the number of employees for whom you can claim the Enterprise Zone credit. And you can claim this credit along with the Federal Work Opportunity Tax Credit, Federal Empowerment Zone Tax Credit, and the Maryland Employment Opportunity Tax Credit. If your credit exceeds your tax liability, you can carry forward the unused credit for five years.
How to claim the incentives
The counties and municipalities in Maryland are responsible for certifying your business as eligible for the tax credits. You can download a list of county or municipal enterprise zone administrators by following the link on the Maryland Department of Business & Economic Development website.
The Enterprise Zone tax credits are available to all types of business entities including sole proprietorships, partnerships, subchapter S corporations, corporations, limited liability companies, business trusts and tax-exempt nonprofit organizations. The income tax credit can be taken against corporate income tax or personal income tax. To claim the employment credit, you need to complete Maryland Tax Form 500CR, Maryland Business Income Tax Credits, and attach it to your individual, corporate, or pass-through entity income tax return.
Enterprise Zone Tax Credit – A Maryland State Tax Credit for Employers – Maryland Department of Labor, Licensing & Regulation
Enterprise Zone Tax Credit – Comptroller of Maryland
Enterprise Zone Tax Credits – Maryland Department of Business & Economic Development