Client Alert: Maryland General Assembly Maintains $6 Million Biotechnology Tax Credit
The Maryland General Assembly has approved funding of the Biotechnology Tax Credit for FY 2010 at $6 million, the same amount allocated last year. While the Budget Bill has yet to be signed by Governor Martin T. O'Malley, it does not appear that he will reject the allocation. The General Assembly also passed HB493/SB880 extending the credit to individuals who invest in Maryland biotechnology companies.
Designed to stimulate investments in Maryland's growing biotechnology and life sciences sector, the program provides investors in qualified companies a refundable state tax credit of up to 50% of their investment. The State has made $6 million of tax credits available to investors every year since 2005, thus supporting $12 million in company investments annually. During FY 2007, 2008, and 2009, the funding level of $6 million was fully committed to investors.
In FY 07 and FY 08, the $6 million pool typically lasted several months. But because the program was amended in FY 09 to open the program to more investors by allowing any entity to take advantage of the credit and lowering the amount such entities could invest to avail themselves of the credit, the $6 million was allocated within the first day that applications were accepted. Representatives from fourteen bioscience companies camped overnight outside the Maryland Department of Business and Economic Development (DBED) for the chance to vie for the first-come, first-serve program. This year's amendment allowing individuals to take advantage of the credit makes it even more likely that the $6 million allocation for the tax credit will be quickly allocated.
In 2008 when the Governor unveiled his administration's plan to invest $1.1 billion (including the Biotechnology Tax Credit program) in the State's biotechnology industry, the investment landscape for Maryland biotech companies became temporarily brighter. But with the economic downturn and the State's looming revenue shortfalls, the Governor's initiative to raise the fund to $12 million this year and to $24 million over the next few years was drastically reduced. Although short of the originally proposed increase to $12 million last year, the $6 million in funding still comes as a relief to biotech companies.
Who can benefit from the credit?
An individual or company who invests at least $25,000 on a qualified Maryland biotechnology company may apply for the tax credit, which amounts to 50% of the investment and it is capped at $250,000. The investor does not have to be a Maryland resident or be a Maryland company, but it must be required to file a tax return in any jurisdiction and must not own or control more than 25% of equity interest in the qualified Maryland biotechnology company after the investment is made. If the investor does not owe any taxes in Maryland, or if the credit exceeds the amount owed to the State, the Comptroller will issue a check to the investor for the amount of the credit.
In order to qualify as a Maryland biotechnology company, the company must be engaged in research, development, or commercialization of technology associated with biological materials, such as biomolecules, cells, tissues, or organs. Although the structure of the tax credit is straightforward, qualifying for the tax credit requires compliance with the program's detailed requirements. The biotechnology company receiving the investment must (1) be headquartered in Maryland; (2) have less than 50 employees; and (3) be in business for no more than 10 years (12 years if regulatory approvals are required).
How to apply?
DBED will begin to accept applications on July 1, 2009, and it is expected that the credit will be used up shortly after the application period opens. In order to apply, two forms are required: an Investor form (Form A1, A2, or A3) and a Qualified Maryland Biotechnology Company form (Form B). The Qualified Maryland Biotechnology form must be accompanied by a number of documents in support of a request for qualification as a Maryland biotechnology company. It is important for companies to begin preparing these documents well in advance of the July 1 deadline, when DBED begins to accept applications. The forms for this year's applications are not available on DBED's website yet, and the Department is also in the process of streamlining the regulations associated with the tax credit.