On May 2, 2013, Governor Martin O’Malley signed into law the Cybersecurity Investment Incentive Tax Credit. The Governor proposed the credit earlier this year as part of his proposed FY 2014 budget. The credit takes effect July 1, 2013, and applies to tax year 2014 through 2018.
Based on Maryland’s biotechnology investment credit, the new cybersecurity credit allows an investor who invests at least $25,000 in a qualified Maryland cybersecurity company to claim a credit in the amount of 33% of investments made in a Maryland cybersecurity company. An investor can receive a refund if the credit exceeds tax otherwise payable for the taxable year. An eligible investment is a contribution to a qualified cybersecurity company in exchange for stock or ownership interest as long as the investor does not acquire an ownership interest in a company that exceeds 25%.
The credit focuses on cybersecurity products rather than services, as the statute requires the investment to be made in a company that is engaged in the development of “innovative and proprietary cybersecurity technology.” Further, to be considered a “qualified Maryland cybersecurity company,” the company must have been in business for no more than five years, have its headquarters and base of operations in Maryland, and have less than 50 full-time employees.
Applications for eligibility for the credit will be accepted by the Maryland Department of Business and Economic Development on a first-come, first-served basis until the annual credit cap has been reached for the year, which is set at $2 million for fiscal years 2014 and 2015. The Department has not yet released applications. However, companies should expect to be required to submit substantial documentation to accompany the application, such as a copy of an investment agreement between the qualified investor and the cybersecurity company and a detailed business plan evidencing that the company is primarily engaged in the development of innovative and proprietary cybersecurity technology.
If you have any questions please contact your Aronson tax advisor or Michael L. Colavito at 301.231.6200.