Maryland Tax Alert: Securing a Big Tax Credit for Security Clearance and SCIF Expenses

May 15, 2012

Maryland recently enacted a new income tax credit for individuals and corporations for qualifying expenses with respect to:

(1) security clearance administrative expenses incurred with regard to an employee in the State; and/or,

(2) construction and equipment costs incurred to construct or renovate sensitive compartmented information facilities (SCIF) located in Maryland.

Credit Amount: The credit for security clearance administrative expenses may not exceed $100,000 of expenses regarding: (1) processing applications for security clearances for employees working in Maryland; or, (2) training employees in Maryland to administer security clearance applications.

The credit for SCIFs is equal to 50% of those expenses, not to exceed $100,000 for a single qualifying facility or $250,000 for multiple qualifying facilities. Qualifying expenses for this aspect of the credit include expenses for constructing, equipping or renovating a SCIF located in Maryland.

Although either aspect of the credit is only available to be claimed for tax years 2013 through 2016, any excess may be carried over until the credit is fully used. If a credit is claimed, an add-back is required of costs from security clearance administrative expenses or expenses in constructing or renovating a SCIF to the extent these costs are deducted in computing federal adjusted gross income.

The credit will be administered by the Department of Business and Economic Development (Department). The total amount of credit approved may not exceed $2,000,000 for any calendar year. If the total amount of credits applied for by all taxpayers exceeds this amount, the credits shall be issued on a pro-rata basis.

Claiming the credit: These credits are issued retroactively. The taxpayer must submit an application to the Department by September 15th of the calendar year following the end of the taxable year in which the costs were incurred. By December 15th of the year of each submission, the Department will certify the amount of credits approved. To claim the credit, the taxpayer will have to file an amended tax return for the year the costs were incurred and attach a copy of the Department’s certification to the amended income tax return. The credits can be carried forward until fully utilized.

The law creating this credit went into effect on July 1, 2012. However, the credit is only available for tax years 2013 through 2016. Thus, it is not clear whether security clearance, etc., expenses incurred from July 1st 2012 through December 31, 2012 qualify for the credit in 2013. Clarification is being sought.

For more information regarding Maryland security clearance credit, please contact your Aronson tax advisor or Henry Chiwaya at or 301.222.8215.