Setting up a Company in Maryland
To encourage the creation and expansion of businesses in the state, Maryland offers several company forms to suit a range of business activities. These include; Corporation, General Partnership, Limited Liability Partnership, Limited Partnership, Limited Liability Limited Partnership, Limited Liability Company. Options for foreign business operations in Maryland are Independent Operations and Joint Venture.
Setting up a Corporation in Maryland is popular with investors because of the high level of protection over personal liability. Members of a Maryland LLC have the ability to pass their share of profits and losses to their individual or joint tax returns. They also benefit from limited liability protection for business debts.
Other advantages of Corporations include having unlimited life and transferable shares.
When setting up a Limited Liability Company an investor should follow these steps:
• Choose a name that includes “Limited Liability Company” or an abbreviation. The name you select must not be on reserve or currently registered with the Maryland Department of Assessments and Taxation.
• File articles of organisation with the Maryland Department of Assessments and Taxation. These must contain the name and address of the business and detail the purpose for forming the LLC. They must also give personal details of the person, LLC or corporation that will act as the resident agent for the LLC.
• It’s advisable to create an operating agreement outlining the rules and regulations that govern LLCs in Maryland.
• Obtain an employer identification number (EIN) from the IRS. This can be completed via fax, phone, mail, or online.
• You will need to register your LLC for business tax purposes by applying for a Maryland state tax ID.
• A Maryland LLC must obtain a business license from the Maryland city or county clerk’s offices. Permit and license requirements for a Maryland LLC depend on the nature of the business.
• All Maryland business entities must submit filing fees once a year and adhere to all the regulations involving the operation of a business entity in Maryland.
Taxation in Maryland
In Maryland, the principal State taxes are sales and use tax, corporation income tax, personal income tax and real property tax. Overall the total tax burden imposed on businesses operating in Maryland and on Maryland residents is lower than in most US states.
Local Tax Registration in Maryland:
Local taxes are usually collected as part of the various State tax systems. Maryland has a 6% sales and use tax on the sale or use of tangible personal property and taxable services unless a specific exemption is provided. Major business exemptions from the sales and use tax include:
• Sales for resale and sales of property to be incorporated in other property manufactured for resale
• Sales of manufacturing machinery equipment including sales of equipment used in research and development
• Sales of property used in a production activity including fuels
• Sales of transportation vehicles used primarily for interstate and foreign commerce
• Certain capital transactions
Maryland Corporation Income Tax:
The tax rate is 8.25% of the net income allocable to Maryland. All corporations that estimate annual income tax liability to exceed $1,000 in Maryland must make a declaration and payment of the estimated tax.
Personal income tax is based essentially on the adjusted gross income reported on an individual’s federal income tax return with certain additions and subtractions. The rates range from 2% on the first $1,000 of taxable income, to 4.75% on taxable income between $3,001, and $200,000 up to 6.25% on taxable income in excess of $1,000,000.
Baltimore City and the Maryland counties impose a local income tax on Maryland taxable income at rates ranging from 1.25% to 3.2%. This local tax is collected and administered by the State.
Certain businesses may be entitled to a tax credit for costs related to the business activity. These include new businesses, businesses expanding in a Maryland priority funding area, and businesses approved by the Maryland Board of Public Works. The credit may be taken against corporate income tax, personal income tax or insurance premiums tax.
Businesses setting up or expanding a facility in Maryland which create new positions in the State may also be entitled to a tax credit. The tax credit amount is determined by the number of positions created.
Businesses that incur qualified research and development expenses in Maryland are entitled to a tax credit.