Legislation recently enacted by the General Assembly makes Maryland the first state to incentivize both the investment in cybersecurity companies and the purchase of cybersecurity products and services. Signed into law on May 15, 2018, by Governor Hogan, Senate Bill 228 extends the tax credit for investing in cybersecurity companies through the fiscal year 2023 and creates a new tax credit for purchasing cybersecurity products or services.
Enhancements to Cybersecurity Investment Incentive
Maryland’s tax credit for investing in cybersecurity companies based in the state has been in existence since 2013. Although Senate Bill 228 made changes to the program, the substance of the credit remains the same. The credit is 33% of the amount invested in a Maryland Cybersecurity Company, but cannot exceed $250,000. If the Maryland Cybersecurity company is located in Allegany, Dorchester, Garrett, or Somerset County, the credit amount increases to 50% of the investment, with a maximum credit of $500,000. In the context of the cybersecurity investment credit, a qualified cybersecurity company is a business that is primarily engaged in the development of innovative and proprietary cybersecurity technology. In other words, the company must sell or plan on selling a cybersecurity product, such as software or hardware, as opposed to being a pure service provider.
The legislation enacted in May make two key changes to the cybersecurity investment credit program. First, the credit is now taken by the actual investor and not the cybersecurity company, as was the case in the prior version of the credit. Second, under the previous version of the credit, the company in which the investment is made could only have been in business for no more than five years. That restriction has been removed from the program.
The new cybersecurity investment credit went into effect on July 1, 2018, and the annual funding for the program is $2 million.
Credit for Purchasing Cybersecurity Protections
SB228 also created a new income tax credit for purchasers of cybersecurity protections. The credit is somewhat limited in terms of both the qualifying purchasers and the cybersecurity provider. The amount of the credit is 50% of the qualifying purchase cost up to $50,000 per year. Unlike the investment credit discussed above, the new credit applies to the purchase of both cybersecurity products and services. However, the credit is only available to Maryland businesses with fewer than 50 fulltime employees. Additionally, the company from which the cybersecurity products and/or services are purchased from must be headquartered and maintain its base operations in Maryland; and meet at least one of the following criteria:
- Have less than $5 million of annual revenue.
- Be a minority-owner, woman-owner, veteran-owned, or service-disabled-veteran-owned business.
- Be located in a historically underutilized business zone.
Funding for this new credit program is slated to be $2 million for the first year and $4 million thereafter.
If you are interested in exploring available Maryland tax credits, contact Michael Colavito or one of our tax advisors at 301.231.6200.