Maryland has a strategic location in the mid-Atlantic, in one of the nation’s busiest corridors. Approximately one-third of the US population lives within a day’s drive, and the state offers many advantages for businesses. It has a deep port, rail lines, major highways, and a highly educated workforce. Maryland ranks first in the nation for having the highest percentage of professional and technical workers.
However, Maryland generates less than 10 percent of its GDP in its manufacturing sector, and employs less than 10 percent of its workers in manufacturing. Manufacturing provides an engine of economic growth, good quality jobs, and opportunity for investment, and state and local governments have developed a myriad of ways to encourage new and expanded manufacturing operations in the state.
Encouraging Manufacturing in Maryland
One of the more traditional methods is by offering manufacturing exemptions for business taxes.
- Maryland sales and use tax does not apply to personal property used directly in production activities or to sales of property that will be incorporated into material produced for resale. This exemption applies to production equipment, replacement parts, consumables, and fabrication charges for eligible equipment, as well as to research and development equipment. There is no special registration or form required to claim this exemption. The manufacturer should provide a certification to the vendor regarding the use of the property in an exempt activity.
- Tangible personal property used in a production or research and development activity is exempt from personal property tax in all Maryland counties. (There are some local jurisdictions where the exemption is less than 100%.) The definition of “production activity” is broad. To take advantage of the manufacturing exemption, the company must submit a one-time application to the State Department of Assessments and Taxation. To qualify for the exemption in the current tax year, the application is due by September 1. The application asks for detailed information related to the manufacturing/R&D operation and the assets used in production.
- Some local jurisdictions offer real property tax credits for investment in green building, and manufacturers can use these credits when building a new production facility. For example, Montgomery County offers a property tax credit using percentages based on LEED (Leadership in Energy and Environmental Design) levels. There is a cap on total incentives available in a year, and the credits may be used for a range of years, depending on the LEED achievement level.
Maryland also encourages manufacturing by offering income tax credits to manufacturers.
- There are more than twenty different business tax credits available to Maryland companies. Many of these credits are not targeted specifically to manufacturers, but they would benefit a manufacturing enterprise. There are credits for locating in an enterprise zone, for job creation, for research and development, for biotechnology investment, and for cybersecurity investment. There are also energy related credits. Many of these income tax credits require pre-certification by state agencies in order to claim them. Others are available based on company location or circumstances.
- Maryland partners with local energy providers to help companies reduce energy use and take advantage of federal credits and deductions. One example is the 179D deduction for lighting improvements.
In addition to these opportunities, the 21st century model of promoting manufacturing growth also includes a variety of programs designed to encourage innovation and the development of a vibrant manufacturing sector in the state. These programs promote cross-fertilization of ideas and methods, and typically, companies must apply and meet a number of stringent requirements. Here is an outline of the various programs currently available:
- Business incubators: Maryland has more than 25 incubators. Some may focus on a specific industry, but all offer early stage companies shared resources, access to equipment and facilities, and business education. Some incubators are connected with universities, while others are sponsored by local counties.
- Science and technology parks: There are seven science and technology parks in Maryland, and all of them are affiliated with either federal research centers or local universities. They provide state of the art laboratory facilities, and are often funded with Federal, state, and local funds, along with private philanthropy.
- Accelerators: These programs help entrepreneurs with those competencies required to grow a successful company, including skill training, mentorship, and advice. The accelerator may take an equity interest in the company in return for providing program services. There are seven programs in the state; all focus on the biology or technology fields. There is a competitive application process and they have a fixed term, with some programs lasting less than a year
- Fab Labs: These digital fabrication labs are open to the community. They serve as a resource for inventors, entrepreneurs, businesses and design professionals and provide the use of high tech equipment such as laser cutters, CNC routers, and 3D printers, as well as any needed training. Membership and usage fees are reasonable and provide designers the ability to make prototypes without a large investment in capital equipment.
- Maker spaces: These may be located in university settings or they can be community based. Maker spaces are similar to Fab Labs, but they offer craft and hardware tools as well as digital fabrication equipment. One of the newest in Maryland is the Baltimore Food HUB, which opened in 2016 and offers start up food processing businesses access to state-of-the-art production kitchen facilities in an incubator setting.
According to the Maryland Department of Commerce website, more than 60 percent of Maryland’s manufacturers are considered advanced and using the newest technologies and processes. But not all have access to the dollars, tools, processes, and advice that will help them grow, thrive and become highly successful. Maryland offers many of the supports they need, including the exemptions, credits and innovation programs discussed here. You can find more information and links to other manufacturing resources at the Maryland Department of Commerce site.
Does this all sound like a lot to process? MKS&H tax professionals can help. We can prepare your manufacturing exemptions applications and advise you regarding the Maryland manufacturing tax credits you may be eligible for. We can also answer your manufacturing and distribution accounting questions on various manufacturing exemptions and credits and research their applicability to your situation. (For additional information, see our recent post on the R&D tax credit to offset payroll taxes.)