Take Advantage of the Maryland Employer Security Clearance Costs (ESCC) Tax Credit
December 17, 2013 - By: SC&H Group
A key advantage of doing business in Maryland are the tax credits that incentivize many security companies and government contractors that call the state their home.
One of these tax credits is the Employer Security Clearance Costs (ESCC) credit, which includes provisions for security clearance administrative expenses, Sensitive Compartmented Information Facility (SCIF) costs, and first-year leasing costs for small businesses.
The total amount of credits depends on the amount of eligible expenses and costs incurred with a limit of $2 million for all businesses that apply. The tax credits are more valuable than deductions because credits are subtracted directly from income tax liability.
Applications for this credit must be submitted by September 15th following the year in which the eligible expenses and costs were incurred, and taxpayers must then file an amended return to claim the credit once certification has been procured.
Here are some more specifics from the Maryland Department of Business and Economic Development:
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.
Documentation and Tracking:
Note that it will be important to keep proper written documentation on any qualified expenses incurred for substantiation and reporting purposes. Because the new law goes 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 a detailed itemized accounting or spreadsheet of the qualifying security clearance administrative expenses, and include this schedule as an attachment to the application.
Sensitive Compartmented Information Facility Costs Tax Credit. A business must provide a detailed itemized accounting of the qualified SCIF costs that shows SCIF assets and equipment for each facility if there are multiple SCIFs in Maryland, and include this schedule as an attachment to the application.
We highly recommend any security company and government contractor in Maryland to take advantage of this unique tax credit. By doing so, you could invest these savings into innovation and new talent to help grow your businesses into 2014 and beyond.
SC&H’s State & Local Tax Practice can help you leverage this opportunity.