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Maryland Employer Security Clearance Costs (ESCC) Tax Credit

Businesses that incur qualified federal security clearance administrative expenses, and construction and equipment costs for constructing or renovating sensitive compartmented information facilities (SCIFs) in Maryland may be eligible for a State income tax credit. In addition, a qualified small business that performs security-based contracting in Maryland may be eligible for a State income tax credit for the first year of rental payments for spaces leased in Maryland. For a business to be eligible, it must apply to and be certified by the Maryland Department of Business and Economic Development (DBED.)

Security Clearance Administrative Expenses Tax Credit
A business may qualify for an income tax credit up to $200,000 per taxable year for qualified security clearance administrative expenses.

Qualified expenses include:

  • Processing application requests for federal security clearance,
  • Maintaining, upgrading or installing computer systems in Maryland that are required to obtain federal security clearance, and
  • Training employees in the State to administer the clearance application process.

Sensitive Compartmented Information Facility Costs Tax Credit
A business may also claim a credit against its Maryland income tax for costs related to the construction or renovation of SCIF located in Maryland.  The SCIF must be accredited by the appropriate federal agency.  For costs related to a single SCIF, the credit is equal to the lesser of 50% of the costs or $200,000.  For costs related to multiple SCIFs, the credit is the amount of costs up to $500,000 per calendar year.

The First Year Leasing Costs Tax Credit for Qualified Small Business
A qualified small business may also claim a credit against its Maryland income tax up to $200,000 for costs for rental payments during the first year of a rental agreement for leasing spaces to perform security-based contracting work.

Claiming the Tax Credit
To claim the ESCC tax credit, a business must submit an application to DBED by September 15th following the tax year in which the related expenses and costs were incurred.  By December 15th of that year, DBED will certify the approved amount for which the applicant will be required to file an amended Maryland income tax return with the Comptroller of Maryland to claim the credit and attach a copy of the DBED certification.

The total ESCC tax credit approved by DBED may not exceed $2 million for any calendar year. If the total amount of credits applied for by all businesses exceeds $2 million, the credits will be approved on a pro-rata basis.
Excess credit may be carried forward until the excess amount is fully used.

The credit is available for eligible expenses for taxable years beginning after December 31, 2012, but before January 1, 2017.

Special Rules for Calendar Year 2013
Because the new law went into effect July 1, 2013, special rules apply for ESCC for the calendar year 2013.

Security Clearance Administrative Expenses Tax Credit
A business must provide amounts of qualified security clearance administrative expenses for between 1/1/2013 and 6/30/2013, and between 7/1/2013 and 12/31/2013 separately.  The business may claim a credit up to $100,000 for expenses incurred between 1/1/2013 and 6/30/2013.  It may also claim an additional credit up to $100,000 for expenses incurred between 7/1/2013 and 12/31/2013.  The total tax credit claimed for security clearance administrative expenses may not exceed $200,000.

Sensitive Compartmented Information Facility Costs Tax Credit
A business must provide amounts of qualified SCIF(s) costs for between 1/1/2013 and 6/30/2013, and between 7/1/2013 and 12/31/2013 separately.  The business may claim a credit of 50% of the costs up to $100,000 for construction or renovation of a single SCIF, and up to $250,000 for multiple SCIFs costs incurred between 1/1/2013 and 6/30/2013.  It may also claim an additional credit up to 50% of the costs up to $100,000 for construction or renovation of a single SCIF, and up to $250,000 for multiple SCIFs incurred between 7/1/2013 and 12/31/2013.  The total tax credit claimed for SCIF(s) costs may not exceed $200,000 for a single SCIF and $500,000 for multiple SCIFs.

The First Year Leasing Costs Tax Credit for Qualified Small Business
A qualified “small business” may claim a credit up to $200,000 for the first year leasing costs incurred only between 7/1/2013 and 12/31/2013.

Tax Year 2013 applications must be sent to DBED and postmarked by September 15, 2014.

Additional Resources
Application
Small Business Affidavit
Frequently Asked Questions
Statute
Regulations

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