Plan Ahead for the Proposed Maryland Cybersecurity Tax Credit

February 8, 2013

On January 16, 2013, Governor Martin O’Malley unveiled the CyberMaryland Investment Incentive Tax Credit Program as part his proposed FY 2014 budget.  The proposed program will provide a refundable tax credit in the amount of 33% of investments made in a Maryland cybersecurity company.  The proposed budget allocates $3,000,000 in tax credits for the “first come first served” program.  The appropriation of the funds for the program is contingent upon the enactment of legislation that authorizes the credit.  Such legislation was proposed in the General Assembly on February 6th as House Bill 803 and is scheduled for hearing on February 26th.

The new credit will require the investment to be made in a cybersecurity company that is based in Maryland, has at least $100,000 in equity, and has been in existence for fewer than five years.  Further, the bill introduced in the General Assembly requires that the investor, after making the investment, not own more than 25% of the equity interest in the cybersecurity company and that the cybersecurity company have fewer than 50 employees.  The credit focuses on cybersecurity products rather than services, as the House Bill 803 requires the investment to be made in a company that is engaged in the development of “innovative and proprietary cybersecurity technology.”

The credit is said to be based on Maryland’s biotechnology credit.  Assuming that the administration of the proposed cybersecurity credit will be similar to the biotech credit and based on the language in the bill, investors will have to pre-certify their investment in order to participate in the program.  Potential investors should expect an application procedure that includes the following:

  1. The completion of two applications, one with respect to the investor and the other regarding the cybersecurity business.  These initial applications will likely be required to be submitted by mail or courier to the Maryland Department of Business and Economic Development (DBED);
  2. The issuance of a user name and reference number by the DBED;
  3. A first come first served online finalized application submitted through use of the user name and reference number issued by the DBED.
  4. If the application is approved, the issuance of an initial credit certificate certifying the amount of the approved tax credit.  The qualified investor will have 30 days from the date of being issued the initial credit certificate to make the investment in the cybersecurity company.
  5. Written notice to the DBED, along with supporting documentation, that the investment has been made.
  6. The issuance of a final tax credit certificate.

Companies interested in the credit program should start planning now, as the applications will likely require substantial documentation to accompany the application, such as a copy of any investment agreement or similar contract between the qualified investor and the cybersecurity company and a detailed business plan.

If you have any questions please contact your Aronson tax advisor, Michael L. Colavito at 301.231.6200.