On May 2, 2013, Governor Martin O’Malley signed into law the Cybersecurity Investment Incentive Tax Credit. The Governor proposed the credit earlier this year as part of his proposed FY 2014 budget. The credit takes effect July 1, 2013, and applies to tax year 2014 through 2018.
Based on Maryland’s biotechnology investment credit, the new cybersecurity credit allows an investor who invests at least $25,000 in a qualified Maryland cybersecurity company to claim a credit in the amount of 33% of investments made in a Maryland cybersecurity company. The credit is not refundable, but any unused amount of the credit may be carried forward for seven tax years. An eligible investment is a contribution to a qualified cybersecurity company in exchange for stock or ownership interest as long as the investor does not acquire an ownership interest in a company that exceeds 25%.
The credit focuses on cybersecurity products rather than services, as the statute requires the investment to be made in a company that is engaged in the development of “innovative and proprietary cybersecurity technology.” Further, to be considered a “qualified Maryland cybersecurity company,” the company must have been in business for no more than five years, have its headquarters and base of operations in Maryland, and have less than 50 full-time employees.
Applications for eligibility for the credit will be accepted by the Maryland Department of Business and Economic Development on a first-come, first-served basis until the annual credit cap has been reached for the year, which is set at $2 million for fiscal years 2014 and 2015. The Department has not yet released applications. However, companies should expect to be required to submit substantial documentation to accompany the application, such as a copy of an investment agreement between the qualified investor and the cybersecurity company and a detailed business plan evidencing that the company is primarily engaged in the development of innovative and proprietary cybersecurity technology.
If you have any questions please contact your Aronson tax advisor or Michael L. Colavito at 301.231.6200.
Maryland Governor Martin O’Malley has signed into law legislation enhancing both the research and development tax credit and the biotechnology investment tax credit. The research and development tax credit will become a refundable credit and some companies that have been in business for more than 10 years will now be eligible for the biotechnology investment tax credit. Additional details on these changes are outlined below.
Research and Development Tax Credit
The research and development tax credit has been modified to allow a Continue reading »
Based on a report by the National Venture Capital Association, Network World has compiled its list of best places for tech startups and the DC area has come in at number 6. The NVCA list measures overall venture capital investment in each respective market to compile its data.
D.C. and the surrounding metro area are home to the federal government and this drives a lot of the trends in this busy market. The VC market is heavily connected to the government, specifically the department of homeland security and defense industry, according to the NVCA. (Source)
If a U.S. company pays a royalty to a foreign company for the use of a software license, there is an issue regarding whether the royalty payment is considered to be U.S. source income to the foreign licensor. If the royalty is considered to be U.S. source income to the foreign licensor then I.R.C. Section 1442 U.S. nonresident tax withholding generally will apply at a rate of Continue reading »
The taxation of cloud computing services is an evolving area of sales and use tax. Cloud computing, which includes a wide variety of service offerings, generally allows businesses the potential to reduce IT costs by outsourcing hardware and software maintenance and support. Still, remote access to software, or “software as a service” (SaaS), is only a small part of what is referred to as “cloud computing.” The term also includes offerings such as Continue reading »
If a U.S. company pays a royalty to a foreign company for the use of a software license, there is an issue regarding whether the royalty payment is considered to be U.S. source income to the foreign licensor. If the royalty is considered to be U.S. source income to the foreign licensor, there are certain reporting requirements and a nonresident tax withholding could apply at a rate of 30%. Continue reading »
Although most of the country is mired in the effects of the Great Recession, the entrepreneurs in Silicon Valley seem quite unaffected. According to a recent article, “In Silicon Valley, the Night is Still Young,” http://www.nytimes.com/2011/08/21/technology/silicon-valley-booms-but-worries-about-a-new-bust.html?_r=1, it appears the outrageous optimism which is a Continue reading »
By Alison N. Dougherty, Tax Manager, Aronson LLC
In a Wall Street Journal article dated August 20, 2011, Marc Andreessen writes that “Software Is Eating the World”. (http://tinyurl.com/6ko4as3) According to Andreessen’s perspective, we are now in the midst of an era in which the growth of software companies represents a significant and increasing share of the economy. From the growth of Apple, Microsoft, Google and Amazon to Facebook, Twitter, Skype, Groupon, Living Social, Zynga and Foursquare, there is a dominant trend in software as the core capability of major businesses and industries. Many sectors and industries from telecommunications, financial services, entertainment, retail, natural resources, automobile, health care, education and national defense are becoming increasingly software driven. Andreessen believes that obsolete technologies are being eaten by software in what he refers to as a software revolution that continues to transform many industries.
So what does this mean for new companies? New companies are at a significant disadvantage in today’s economic and regulatory environment. The new generation of technology companies needs to be even stronger and more resilient to survive. If the new technology companies can prove their worth, they are going to be “highly valuable cornerstone companies in the global economy.” The best of the new companies will be positioned for significant growth if the economy eventually stabilizes. Andreessen predicts that the cornerstone companies which evolve will have the capacity to eat even larger markets. So it may appear that software is eating the world for the time being and at least for the near future.
The state taxation of digital goods and services that are delivered electronically (i.e., music and book downloads) may soon be regulated under legislation currently working its way through both houses of Congress. HR 1860 (S. 971 in the Senate), the Digital Goods and Services Tax Fairness Act of 2011, was introduced on May 12, 2011, “to promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services”. The bill is intended to prevent discriminatory taxation on digital goods and services (such as tax imposed at a higher rate than the rate that would be applied to non-digital goods and services), and taxation in multiple jurisdictions.
Under H.R. 1860, taxes on the sale of digital goods and services may only be imposed by the state of the customer’s address. If the sale of digital goods or services is made to multiple locations of a customer, the seller may determine the customer’s tax address using the address as provided by the customer.
The legislation also places a limitation on the expansive interpretation of existing tax laws that apply to the sale or use of tangible personal property, telecommunications services, Internet access services, or audio/video programming services that may be construed to be imposed on the sale or use of a digital good or service.
Since digital goods and services are not tangible personal property, many states, at present, do not tax the sales of such items. There is concern, however, by proponents of the legislation, that states – in the midst of an economic downturn – will begin aggressively seeking revenue and begin taxing digital goods and services at potentially discriminatory high rates – and in multiple jurisdictions.
Opponents of the bill, the Federal Tax Administration (FTA), point out that the bill’s provision giving exclusive taxing jurisdiction at the purchaser’s address would preclude the seller’s state from imposing a tax on the sale, potentially causing the sale to escape taxation entirely if the seller does not have presence in the purchaser’s state (since the purchaser’s state is also not allowed to impose a sales tax unless the seller has a physical presence there (Quill Corp v. North Dakota, 504 U.S. 298 (1992))). (This is an argument used by the FTA – not necessarily the position of Aronson LLC – as there are more complex state sales and use tax laws that could apply here as a counter to the FTA’s position.)
If you offer digital goods or services of any kind, it is important to keep close track of your sales, including the states your customers are in. You should also consult with a tax expert if you have any questions regarding compliance with state sales tax laws.
By: Laura Miller
Does your business provide research and development services using a milestone arrangement? The new FASB standards in ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method. Research and development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from a research and development effort. An entity that recognizes these milestone payments as revenue in their entirety upon achieving the related milestone is using the milestone method. Continue reading »
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