Incentive to Invest in Maryland Cybersecurity Firms
September 20, 2018 - By: SC&H Group
The State of Maryland wants to enhance investments in cybersecurity companies that call Maryland home. For those who invest in qualifying Maryland cybersecurity companies, a refundable credit is available for 33% of your investment! The amount of this Cybersecurity Investment Incentive Tax Credit is limited to $250,000 for an investor in a fiscal year.
To qualify for the credit the cybersecurity company must be headquartered in Maryland, have fewer than 50 employees, and has an aggregate capitalization of at least $100,0000. The company’s activities must relate to cybersecurity technology intended to detect or prevent unauthorized access to information systems.
The certified investor who has earned the credit will either reduce his Maryland income taxes or get a refund check from the Comptroller of Maryland, for up to 33% of his or her investment. An investor who otherwise would not file in Maryland or have a Maryland income tax liability, files a Maryland income tax return for the tax year in which the investment is certified, and the State will issue that investor a check. From the investors perspective, it’s an instant return on his or her investment in addition to continuing to hold an equity position in the company.
A similar credit for Maryland biotechnology companies has been increasingly successful. In fact, the biotechnology investment incentive credit has been oversubscribed in the past two years. With the cybersecurity credit using the same methods of certification, Maryland cybersecurity companies also become very attractive investments.
As an example, to show how lucrative this credit can be, consider an investor who purchases $150,000 in the stock of a qualified cybersecurity company for 10% of the company. Further assume that the investor has no other ties to Maryland and therefore has no Maryland income tax liability. With this certified investment, the investor would file a Maryland return that shows no state tax liability, and the State will issue the investor a check for $50,000. Assuming the company is truly valued at $1,500,000 ($150,000 divided by 10%), the investor dramatically increases the chances of getting a superior return on his or her investment.
Because this is a “first come, first serve” credit the timing of the application is important. Completed investor applications submitted to the Maryland Department of Commerce before September 24, 2018 will be allowed to electronically finalize their submission on October 2, 2018. Those investors applying after September 24th, will be issued the opportunity to finalize their application after this first wave of certified applicants.
As part of the investors’ application, the company must provide information to show that it is a qualified Maryland cybersecurity company. Details and qualifications are located on the Department of Commerce website. The Department’s verification process is rigorous, so providing the needed information is essential to the certification process.
If you have any question, please reach out to our SC&H Group tax professionals.