"All the manufacturing establishments of the country, of any size and nature, [are] forbidden to move from their present locations, except [if] granted a special permission to do so by the Bureau of Economic Planning and National Resources."
Thankfully, this headline is a work of fiction directly out of Ayn Rand's novel Atlas Shrugged.
As businesses in the U.S. are free to move and relocate to any state of their choosing, States have long undertaken the task of enacting various pieces of legislation aimed at attracting business development within their state borders. One such piece of legislation comes in the form of an attractive tax credit for investors in biotechnology companies that are located in Maryland: the Biotechnology Investment Incentive Tax Credit (“BIITC”). Maryland's BIITC provides “qualified investors” with income tax credits amounting to 50% of an “eligible investment” in a Qualified Maryland Biotechnology Company (“QMBC”). Such credits, however, may not exceed $250,000 for each QMBC per fiscal year.
First, in order to meet the BIITC “qualified investor” requirement, an individual or entity must (1) invest, at a minimum, $25,000, (2) into a QMBC, and (3) be required to file an income tax return in any non-tax haven jurisdiction. Such investor, however, is limited to a Maryland tax credit of $250,000 per fiscal year per each QMBC it invests in. Furthermore, no qualified investor is eligible for more than 15% of the annual budgeted credit amount. For fiscal year 2015, this amounts to a maximum BIITC of $1,800,000 per qualified investor.
Secondly, an individual or entity must meet the BIITC's “qualified investment” requirement. A qualified investment is a contribution of money in cash (or a cash equivalent such as a bank certificate of deposit, a piece of corporate commercial paper, or a U.S. government Treasury bill) to a QMBC in exchange for either stock, a partnership or membership interest, or some other interest in the QMBC that vests in the contributor (investor). Such a qualified investment does not include any form of debt and must be subject to a risk of loss.
Lastly, the BIITC requires the biotechnology company to be a QMBC, which is met if the company has: (1) headquarters and a base of operations in Maryland; (2) fewer than 50 employees; (3) an active business that has been active for no more than 10 years; (4) no securities that are publicly traded on any exchange; and (5) QMBC certification from Maryland's Department of Business & Economic Development.
If the requirements mentioned above are met, investors in Maryland biotechnology companies will be entitled to this state sponsored tax credit. When compared to other state credits for biotechnology company investments (i.e. programs Arizona and Virginia), Maryland's BIITC offers an unparalleled opportunity for investors. This opportunity, however, must be seized as quickly as possible as each application for the credit is approved on a first-come, first-served basis. Furthermore, many recent data-driven studies suggest that the benefit of state and municipality funded tax credits is largely in favor of the taxpayer. The continued funding of tax credits such as BIITC, consequently, may be in jeopardy and must be taken advantage of sooner rather than later.