The Basics to Know About Foreign Tax Credits

1. Foreign Taxes Paid by a U.S. Company Conducting Business Activities Directly in a Foreign Country or through a Foreign Branch

• C Corporation – A U.S. company that is a C corporation which conducts business in a foreign country directly or through a foreign branch may claim a foreign tax credit for foreign taxes paid on income earned in the foreign country. The foreign tax credit is subject to limitation and is offset against the U.S. tax liability on the U.S. federal income tax return.
• U.S. Partnership or S Corporation – A U.S. partnership or S corporation which conducts business in a foreign country directly or through a foreign branch will pass through foreign source income and foreign taxes paid to the respective partners in the partnership or shareholders in the S corporation. The partners and shareholders may claim a foreign tax credit Continue reading »

Opportunity for Maryland Taxpayers: Get Credit for Taxes Paid to Other States!

Maryland taxpayers who were not permitted to claim a credit for personal income taxes paid to other states against their local income tax (i.e., City, County or Town) may still claim such a credit on a timely filed protective claim for refund for a tax year with respect to which such opportunity is still available.

Last year, the Howard County Circuit Court ruled that Maryland’s current application of the credit for taxes paid to other states is unconstitutional in so far as the credit is not allowed to offset the Maryland local personal income tax. That decision is still working its way through the appeal process and is unlikely to get to a final determination anytime soon. Nonetheless, the decision presents an opportunity for Maryland taxpayers to amend prior years’ tax returns and claim credits Continue reading »

Maryland Credit for Taxes Paid

The Howard County Circuit Court recently struck down, as unconstitutional, Maryland’s credit mechanism for personal income taxes paid to other states insofar as that credit does not extend to income taxes paid to Maryland localities. Taxpayers who were denied this credit against Maryland local income taxes may eventually be due refunds. 

The Maryland personal income tax is composed of an amount payable to the state and another portion payable to a locality. Both the state portion and the local portion of the tax are collected by the Maryland Comptroller. As do most states, Maryland allows residents a credit against personal income for taxes paid to other states. However, the Maryland credit for taxes paid to other states is not allowed against the local portion of the income tax.

A Maryland couple challenged this credit scheme, which disallowed a credit against their county income tax, as a violation of the Commerce Clause of the U.S. Constitution. In a lengthy opinion issued on June 29, 2011, Judge Becker of the Howard County Circuit Court agreed. The state is certain to appeal and the final determination of the case is not likely to be known until 2012 or 2013. 

In the meantime, the period for filing refund claims is generally three years from the date a timely Maryland return (including extensions) was filed.  Therefore, refund claims are foreclosed for all tax years before 2007 and for any return that was filed without extension for 2007 (i.e., filed on or before April 15, 2008).  However, taxpayers who extended the 2007 return may still have time to file protective refund claims. Consequently, immediate action is required to file timely amended Maryland returns for such protective claims. 

Aronson LLC can assist in filing these protective claims or with answers to questions concerning the Court’s decision. Please contact Horace Lamb, Jack Koniszewski or Henry Chiwaya at 301.231.6200.

Biotechnology Business Tax Credits for Maryland!

Last month, H.B. 587 entitled “Biotechnology Investment Tax Credit – Qualified Maryland Biotechnology Company” became law.  This provides income tax credits for fiscal year 2012 and 2013 equal to 50% of an eligible investment for investors in qualified Maryland biotechnology companies.  This tax credit program offers incentives for investment in seed and early stage biotech companies, up to $250,000.  Investments in companies that have been in active business for up to 15 years qualify for the credit.

When can I submit an application for certification?

Applications can be submitted beginning JUNE 1, 2011 and are reviewed and approved on a first come basis.  It should also be noted that total credit certificates issued in a fiscal year cannot exceed budget amount, so the sooner you can file your completed application the better!

Contact us today to assist you in preparation of the full application.

For more information, visit Maryland’s Department of Business & Economic Development website at:

http://www.choosemaryland.org/businessresources/pages/biotechnologyinvestmenttaxcredit.aspx