EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
*hb0457*
HOUSE BILL 457
Q3 2lr0337
By: Delegates Lehman, Palakovich Carr, R. Lewis, Moon, Ruth, and Stewart
Introduced and read first time: January 20, 2022
Assigned to: Ways and Means
A BILL ENTITLED
AN ACT concerning 1
Corporate Income Tax – Throwback Rule and Combined Reporting 2
FOR the purpose of requiring that certain sales of tangible personal property be included 3
in the numerator of the sales factor used for apportioning a corporation’s income to 4
the State under certain circumstances; requiring certain corporations to compute 5
Maryland taxable income using a certain method; authorizing certain corporations, 6
subject to regulations adopted by the Comptroller, to determine certain income using 7
a certain method; requiring, subject to regulations adopted by the Comptroller, 8
certain groups of corporations to file a combined income tax return reflecting the 9
aggregate income tax liability of all the members of the group; requiring the 10
Comptroller to adopt certain regulations consistent with certain regulations adopted 11
by the Multistate Tax Commission; providing a subtraction modification under the 12
Maryland corporate income tax for certain changes to a certain combined group’s 13
deferred tax assets or liabilities that are the result of certain provisions of this Act; 14
prohibiting the subtraction from being reduced as a result of an event that occurs 15
after the calculation of the subtraction; providing, under certain circumstances, for 16
the carryforward of the subtraction; authorizing the Comptroller to review and alter 17
the amount of the subtraction specified in the statement or claimed on certain tax 18
returns; requiring the Comptroller to assess interest and penalties under certain 19
circumstances; and generally relating to the Maryland income tax on corporations. 20
BY repealing and reenacting, with amendments, 21
Article – Tax – General 22
Section 10–402(d) and 10–811 23
Annotated Code of Maryland 24
(2016 Replacement Volume and 2021 Supplement) 25
BY adding to 26
Article – Tax – General 27
Section 10–311 and 10–402.1 28
Annotated Code of Maryland 29 2 HOUSE BILL 457
(2016 Replacement Volume and 2021 Supplement) 1
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 2
That the Laws of Maryland read as follows: 3
Article – Tax – General 4
10–402. 5
(d) (1) (i) In this paragraph: 6
1. “manufacturing corporation” means a domestic or foreign 7
corporation which is primarily engaged in activities that, in accordance with the North 8
American Industrial Classification System (NAICS), United States Manual, United States 9
Office of Management and Budget, 1997 Edition, would be included in Sector 11, 31, 32, or 10
33; and 11
2. “manufacturing corporation” does not include a refiner, as 12
defined in § 10–101 of the Business Regulation Article. 13
(ii) If a manufacturing corporation carries on its trade or business 14
within and outside the State and the trade or business is a unitary business, the part of the 15
corporation’s Maryland modified income derived from or reasonably attributable to trade 16
or business carried on in the State shall be determined using a single sales factor 17
apportionment formula, by multiplying its Maryland modified income by 100% of the sales 18
factor. 19
(iii) In filing its tax return for each year, a manufacturing corporation 20
shall certify that the NAICS Code reported on its Maryland return is consistent with that 21
reported to other government agencies. 22
(iv) If the Comptroller determines that a corporation has submitted 23
information that incorrectly classifies the corporation as a manufacturing corporation 24
under subparagraph (i) of this paragraph, the Comptroller shall reclassify the corporation 25
in an appropriate manner. 26
(2) Except as provided in paragraphs (1) and (3) of this subsection: 27
(i) for a taxable year beginning after December 31, 2017, but before 28
January 1, 2019, if the trade or business is a unitary business, the part of the corporation’s 29
Maryland modified income derived from or reasonably attributable to trade or business 30
carried on in the State shall be determined using a 3–factor apportionment fraction: 31
1. the numerator of which is the sum of the property factor, 32
the payroll factor, and 3 times the sales factor; and 33
2. the denominator of which is 5; 34 HOUSE BILL 457 3
(ii) for a taxable year beginning after December 31, 2018, but before 1
January 1, 2020, if the trade or business is a unitary business, the part of the corporation’s 2
Maryland modified income derived from or reasonably attributable to trade or business 3
carried on in the State shall be determined using a 3–factor apportionment fraction: 4
1. the numerator of which is the sum of the property factor, 5
the payroll factor, and 4 times the sales factor; and 6
2. the denominator of which is 6; 7
(iii) for a taxable year beginning after December 31, 2019, but before 8
January 1, 2021, if the trade or business is a unitary business, the part of the corporation’s 9
Maryland modified income derived from or reasonably attributable to trade or business 10
carried on in the State shall be determined using a 3–factor apportionment fraction: 11
1. the numerator of which is the sum of the property factor, 12
the payroll factor, and 5 times the sales factor; and 13
2. the denominator of which is 7; 14
(iv) for a taxable year beginning after December 31, 2020, but before 15
January 1, 2022, if the trade or business is a unitary business, the part of the corporation’s 16
Maryland modified income derived from or reasonably attributable to trade or business 17
carried on in the State shall be determined using a 3–factor apportionment fraction: 18
1. the numerator of which is the sum of the property factor, 19
the payroll factor, and 6 times the sales factor; and 20
2. the denominator of which is 8; and 21
(v) for a taxable year beginning after December 31, 2021, if the trade 22
or business is a unitary business, the part of the corporation’s Maryland modified income 23
derived from or reasonably attributable to trade or business carried on in the State shall 24
be determined using a single sales factor apportionment formula, by multiplying its 25
Maryland modified income by 100% of the sales factor. 26
(3) (i) Each year a worldwide headquartered company that filed a 27
federal corporate income tax return for the taxable year may elect to calculate its Maryland 28
modified income derived from or reasonably attributable to trade or business carried on in 29
the State using a 3–factor apportionment fraction: 30
1. the numerator of which is the sum of the property factor, 31
the payroll factor, and twice the sales factor; and 32
2. the denominator of which is 4. 33
4 HOUSE BILL 457
(ii) To determine under subparagraph (i) of this paragraph the 1
Maryland modified income of a corporation or group of corporations that is a worldwide 2
headquartered company that filed a federal corporate income tax return for the taxable 3
year, gross income from intangible investments, including dividends, interest, royalties, 4
and capital gains from the sale of intangible property, shall be included in the calculation 5
of the numerator based on the average of the property and payroll factors. 6
(4) The property factor under paragraphs (2) and (3) of this subsection shall 7
include: 8
(i) rented and owned real property; and 9
(ii) tangible personal property located in the State and used in the 10
trade or business. 11
(5) (I) SALES OF TANGIBLE PER SONAL PROPERTY SHALL BE 12
INCLUDED IN THE NUME RATOR OF THE SALES F ACTOR UNDER PARAGRAP H (1), (2), 13
OR (3) OF THIS SUBSECTION IF: 14
1. THE PROPERTY IS DELI VERED OR SHIPPED TO A 15
PURCHASER WITHIN THE STATE, REGARDLESS OF THE FR EE ON BOARD (F.O.B.) 16
POINT OR OTHER CONDI TIONS OF THE SALE ; OR 17
2. THE PROPERTY IS SHIP PED FROM AN OFFICE , A 18
STORE, A WAREHOUSE , A FACTORY, OR ANY OTHER PLACE O F STORAGE IN THE 19
STATE AND THE CORPORA TION IS NOT TAXABLE IN THE STATE OF THE PURCHASER . 20
(II) FOR PURPOSES OF SUBPA RAGRAPH (I) OF THIS 21
PARAGRAPH , A CORPORATION IS TAX ABLE IN A STATE IF: 22
1. IN THAT STATE THE CO RPORATION IS SUBJE CT TO A 23
NET INCOME TAX , FRANCHISE TAX MEASUR ED BY NET INCOME , FRANCHISE TAX FOR 24
THE PRIVILEGE OF DOI NG BUSINESS, OR CORPORATE STOCK T AX; OR 25
2. THAT STATE HAS JURIS DICTION TO SUBJECT T HE 26
TAXPAYER TO A NET IN COME TAX, REGARDLESS OF WHETHE R, IN FACT, THE STATE 27
IMPOSES A TAX. 28
SECTION 2. AND BE IT FURTHER ENACTED, That the Laws of Maryland read 29
as follows: 30
Article – Tax – General 31
10–311. 32
HOUSE BILL 457 5
(A) (1) IN THIS SECTION THE F OLLOWING WORDS HAVE THE MEANINGS 1
INDICATED. 2
(2) “COMBINED GROUP ” HAS THE MEANING STATED IN § 10–402.1 OF 3
THIS TITLE. 4
(3) “NET DEFERRED TAX ASSE T” MEANS THE AMOUNT BY WHICH THE 5
DEFERRED TAX ASSETS EXCEED THE DEFERRED TAX LIABILITIES OF A COMBINED 6
GROUP, COMPUTED IN ACCORDAN CE WITH GENERALLY AC CEPTED ACCOUNTING 7
PRINCIPLES. 8
(4) “NET DEFERRED TAX LIABILI TY” MEANS THE AMOUNT BY WHICH 9
THE DEFERRED TAX LAB ILITIES EXCEED THE D EFERRED TAX ASSETS O F A 10
COMBINED GROUP , COMPUTED IN ACCORDAN CE WITH GENERALLY AC CEPTED 11
ACCOUNTING PRINCIPLE S. 12
(B) THIS SECTION APPLIES ONLY TO A COMBINED G ROUP THA T ON OR 13
BEFORE THE DATE OF E NACTMENT OF THE PROV ISIONS OF § 10–402.1 OF THIS TITLE 14
BY CHAPTER _____ (H.B. _____) (2LR0337) OF THE ACTS OF THE GENERAL 15
ASSEMBLY OF 2022, THE MEMBERS OF WHICH WERE: 16
(1) PUBLICLY TRADED ; OR 17
(2) AFFILIATED WITH A CO MBINED GROUP THAT WAS PUBLI CLY 18
TRADED, AND PARTICIPATED IN THE FILING OF THE PU BLICLY TRADED 19
CORPORATION ’S FINANCIAL STATEMEN TS PREPARED IN ACCOR DANCE WITH 20
GENERALLY ACCEPTED A CCOUNTING PRINCIPLES . 21
(C) (1) SUBJECT TO PARAGRAPH (2) OF THIS SUBSECTION , IN ADDITION 22
TO THE MODIFICATIONS UNDER §§ 10–307 AND 10–308 OF THIS SUBTITLE , THE 23
AMOUNTS DETERMINED U NDER SUBSECTION (D) OF THIS SECTION ARE 24
SUBTRACTED FROM THE FEDERAL TAXABLE INCO ME OF A COMBINED GRO UP TO 25
DETERMINE MARYLAND MODIFIED INC OME OF THE COMBINED GROUP IF, AS OF THE 26
DATE OF ENACTMENT OF § 10–402.1 OF THIS TITLE BY CHAPTER _____ (H.B. _____) 27
(2LR0337) OF THE ACTS OF THE GENERAL ASSEMBLY OF 2022, THE ENACTMENT 28
RESULTED IN AN AGGRE GATE: 29
(I) INCREASE TO THE COMB INED GROUP’S NET DEFERRED TAX 30
LIABILITY; 31
(II) DECREASE TO THE COMB INED GROUP’S NET DEFERRED TAX 32
ASSET; OR 33
(III) CHANGE FROM A NET DE FERRED TAX ASSET TO A NET 34 6 HOUSE BILL 457
DEFERRED TAX LIABILI TY. 1
(2) THE AMOUNT OF ANY INC REASE, DECREASE, OR CHANGE SHALL 2
BE DETERMINED WITHOU T REGARD TO THE SUBT RACTION AUTHORIZED UNDER 3
THIS SECTION. 4
(D) (1) SUBJECT TO PARAGRAPHS (2) AND (3) OF THIS SUBSECTION , THE 5
SUBTRACTION AUTHORIZ ED UNDER THIS SECTIO N IS EQUAL TO ONE–TENTH OF THE 6
AMOUNT NECESSARY TO OFFSET THE AGGREGATE : 7
(I) INCREASE TO THE COMB INED GROUP’S NET DEFERRED TAX 8
LIABILITY; 9
(II) DECREASE TO THE COMB INED GROUP’S NET DEFERRED TAX 10
ASSET; OR 11
(III) CHANGE FROM A NET DE FERRED TAX ASSET TO A NET 12
DEFERRED TAX LIABILI TY. 13
(2) THE AMOUNT OF THE SUB TRACTION AS DETERMIN ED UNDER 14
PARAGRAPH (1) OF THIS SUBSECTION SHALL BE : 15
(I) DIVIDED BY THE RATE DETERMINED UNDER § 10–105(B) OF 16
THIS TITLE IN EFFECT ON JANUARY 1, 2024; AND 17
(II) FURTHER DIVIDED BY T HE MARYLAND APPORTIONMEN T 18
FRACTION THAT WAS US ED BY THE COMBINED G ROUP IN THE CALCULAT ION OF THE 19
DEFERRED TAX ASSETS AND DEFER RED TAX LIABILITIES AS DESCRIBED IN 20
PARAGRAPH (1) OF THIS SUBSECTION . 21
(3) THE SUBTRACTION AUTHO RIZED UNDER THIS SEC TION MAY BE 22
USED TO REDUCE THE C OMBINED GROUP ’S MARYLAND MODIFIED INC OME FOR 10 23
CONSECUTIVE TAXABLE YEARS BEGINNING WITH THE FIRST TAXABLE YE AR THAT 24
BEGINS AFTER DECEMBER 31, 2028. 25
(4) THE SUBTRACTION CALCU LATED UNDER THIS SECTION M AY NOT 26
BE REDUCED AS A RESU LT OF ANY EVENT THAT OCCURS AFTER THE CAL CULATION, 27
INCLUDING THE DISPOS ITION OR ABANDONMENT OF ANY ASSET. 28
(5) THE SUBTRACTION AUTHO RIZED UNDER THIS SEC TION: 29
(I) SHALL BE CALCULATED WITHOUT REGARD TO TH E FEDERAL 30
TAX EFFECT; AND 31
HOUSE BILL 457 7
(II) MAY NOT ALTER THE TA X BASIS OF ANY ASSET . 1
(6) IF THE SUBTRACTION DE TERMINED UNDER THIS SECTION 2
RESULTS IN A SUBTRAC TION THAT EXCEEDS MARYLAND MODIFIED INC OME 3
COMPUTED WITHOUT REG ARD TO THE SUBTRACTI ON UNDER THIS SECTIO N, THE 4
AMOUNT OF THE EXCESS MAY BE CARRIED FORWA RD TO SUCCEEDING TAX ABLE 5
YEARS AND USED TO RE DUCE MARYLAND MODIFIED INC OME IN EACH SUCCEEDI NG 6
TAXABLE YEAR UNTIL T HE EXCESS IS FULLY U SED. 7
(E) (1) ON OR BEFORE JULY 1, 2025, A COMBINED GROUP THA T INTENDS 8
TO CLAIM A SUBTRACTION UNDER THIS SECTION S HALL FILE WITH THE 9
COMPTROLLER A STATEMENT THAT SPE CIFIES THE TOTAL AMO UNT OF THE 10
SUBTRACTION THAT THE COMBINED GROUP INTEN DS TO CLAIM. 11
(2) THE STATEMENT SHALL B E ON THE FORM AND CO NTAIN THE 12
INFORMATION THE COMPTROLLER REQUIRES . 13
(3) THE COMPTROLLER MAY REVIE W AND ALTER THE AMOU NT OF: 14
(I) THE SUBTRACTION SPEC IFIED IN THE STATEME NT 15
REQUIRED UNDER PARAG RAPH (1) OF THIS SUBSECTION ; OR 16
(II) THE SUBTRACTION CLAI MED ON A TAX RETURN FOR ANY 17
TAXABLE YEAR . 18
10–402.1. 19
(A) (1) IN THIS SECTION THE F OLLOWING WORDS HAVE THE MEANINGS 20
INDICATED. 21
(2) “COMBINED GROUP ” MEANS A GROUP OF COR PORATIONS: 22
(I) THAT IS ENGAGED IN A UNITARY BUSINESS ; 23
(II) IN WHICH MORE THAN 50% OF THE VOTING STOCK OF EACH 24
MEMBER IS DIRECTLY OR INDIRECT LY OWNED BY: 25
1. A COMMON OWNER OR CO MMON OWNERS , EITHER 26
CORPORATE OR NONCORP ORATE; OR 27
2. ONE OR MORE MEMBER C ORPORATIONS OF THE 28
GROUP; 29
(III) THE MEMBERS OF WHICH ARE SUBJECT TO THE I NCOME TAX 30 8 HOUSE BILL 457
OR WOULD BE SUBJECT TO THE INCOME TAX IF DOING BUS INESS IN THE STATE; AND 1
(IV) CONSISTING OF ANY OT HER MEMBERS UNDER TH E 2
CIRCUMSTANCES AND TO THE EXTENT PROVIDED IN REGULATIONS ADOPT ED BY 3
THE COMPTROLLER TO PREVEN T THE AVOIDANCE OF T AX OR TO REFLECT CLE ARLY 4
THE INCOME OF ANY ME MBER OF THE COMBINED GROU P FOR ANY PERIOD . 5
(3) “COMBINED RETURN ” MEANS A TAX RETURN F OR THE COMBINED 6
GROUP CONTAINING INF ORMATION AS PROVIDED IN THIS SECTION OR O THERWISE 7
REQUIRED BY THE COMPTROLLER . 8
(4) “UNITARY BUSINESS ” MEANS A SINGLE ECONO MIC ENTERPR ISE 9
THAT IS MADE EITHER OF SEPARATE PARTS OF A SINGLE BUSINESS EN TITY OR OF A 10
COMMONLY CONTROLLED GROUP OF BUSINESS EN TITIES THAT ARE SUFF ICIENTLY 11
INTERDEPENDENT , INTEGRATED, AND INTERRELATED THR OUGH THEIR ACTIVITIE S 12
SO AS TO PROVIDE MUT UAL BENEFIT THAT PR ODUCES A SHARING OR EXCHANGE OF 13
VALUE AMONG THEM AND A SIGNIFICANT FLOW O F VALUE TO THE SEPAR ATE PARTS. 14
(B) (1) THE TERM “UNITARY BUSINESS ” SHALL BE CONSTRUED T O THE 15
BROADEST EXTENT ALLO WED UNDER THE U.S. CONSTITUTION. 16
(2) A BUSINESS CONDUCTED D IRECTLY OR INDIRECTLY BY O NE 17
CORPORATION IS A UNI TARY BUSINESS WITH R ESPECT TO THAT PORTI ON OF A 18
BUSINESS CONDUCTED B Y ANOTHER CORPORATIO N THROUGH ITS DIRECT OR 19
INDIRECT INTEREST IN A PARTNERSHIP IF THE REQUIREMENTS OF SUBS ECTION 20
(A)(4) OF THIS SECTION ARE SATISFIED, INCLUDING IF THERE I S SYNERGY AND AN 21
EXCHANGE AND FLOW OF VALUE BETWEEN THE TW O PARTS OF THE BUSIN ESS AND 22
THE TWO CORPORATIONS ARE MEMBERS OF THE S AME COMMONLY CONTROL LED 23
GROUP. 24
(3) A BUSINESS CONDUCTED B Y A PARTNERSHIP SHAL L BE TREATED 25
AS CONDUCT ED BY ITS PARTNERS , WHETHER DIRECTLY HEL D OR INDIRECTLY HELD 26
THROUGH A SERIES OF PARTNERSHIPS , TO THE EXTENT OF THE PARTNER’S 27
DISTRIBUTIVE SHARE O F THE PARTNERSHIP ’S INCOME, REGARDLESS OF THE 28
PERCENTAGE OF THE PA RTNER’S OWNERSHIP INTEREST OR ITS DISTRIBUTI VE OR 29
ANY OTHER SHARE OF P ARTNERSHIP INCOME . 30
(C) (1) EXCEPT AS PROVIDED BY AND SUBJECT TO REGUL ATIONS 31
ADOPTED BY THE COMPTROLLER , FOR ALL TAXABLE YEAR S BEGINNING AFTER 32
DECEMBER 31, 2023, A CORPORATION ENGAGE D IN A UNITARY BUSIN ESS SHALL 33
FILE A COMBINED R ETURN, REPORTING AND PAYING TAX ON WORLDWIDE TAX ABLE 34
INCOME AS A COMBINED GROUP, REFLECTING THE AGGRE GATE INCOME TAX 35
LIABILITY OF ALL MEM BERS OF THE COMBINED GROUP THAT ARE ENGAG ED IN A 36
UNITARY BUSINESS . 37 HOUSE BILL 457 9
(2) THE TAXABLE INCOME OF A CORPORATION REQUIR ED TO FILE 1
UNDER § 10–811(A)(2) OF THIS TITLE IS EQU AL TO THE COMBINED G ROUP’S 2
MARYLAND MODIFIED INC OME AS ADJUSTED UNDE R SUBSECTION (D)(3) OF THIS 3
SECTION. 4
(D) (1) THE MARYLAND MODIFIED INC OME OF THE COMBINED GROUP 5
EQUALS THE PRODUCT O F: 6
(I) THE COMBINED GROUP ’S APPORTIONABLE MARYLAND 7
MODIFIED INCOME , AS DETERMINED UNDER PARAGRAPH (2) OF THIS SUBSECTION 8
AND ADJUSTED UNDER P ARAGRAPH (3) OF THIS SUBSECTION ; AND 9
(II) THE COMBINED GROUP ’S MARYLAND APPORTIONMEN T 10
FACTOR, AS DETERMINED UNDER PARAGRAP H (4) OF THIS SUBSECTION . 11
(2) (I) SUBJECT TO SUBPARAGRA PHS (II) THROUGH (IV) OF THIS 12
PARAGRAPH , THE APPORTIONABLE MARYLAND MODIFIED INC OME OF THE 13
COMBINED GROUP EQUAL S THE SUM OF THE COR PORATION’S AND EACH MEMBER ’S 14
MARYLAND MODIFIED INC OME. 15
(II) 1. SUBJECT TO SUBSUBPARA GRAPH 2 OF THIS 16
SUBPARAGRAPH , FOR ANY MEMBER INCOR PORATED IN THE UNITED STATES OR 17
INCLUDED IN A CONSOL IDATED FEDERAL CORPO RATE INCOME TAX RETU RN, THE 18
INCOME TO BE INCLUDE D IN THE TOTAL APPOR TIONABLE INCOME OF T HE 19
COMBINED GROUP IS TH E MARYLAND MODIFIED INC OME AS CALCULATED UN DER § 20
10–304 OF THIS TITLE. 21
2. THE INCOME OF EACH ME MBER SHALL BE 22
CALCULATED ON A SEPA RATE RETURN BASIS AS IF THE MEMBER WERE N OT 23
CONSOLIDATED FOR FED ERAL INCOME TAX PURP OSES. 24
(III) 1. FOR ANY MEMBER NOT IN CLUDED UNDER 25
SUBPARAGRAPH (II) OF THIS PARAGRAPH , THE INCOME TO BE INC LUDED IN THE 26
TOTAL INCOME OF THE COMBINED GROUP IS DE TERMINED AS PROVIDED UNDER 27
THIS SUBPARAGRAPH . 28
2. A PROFIT AND LOSS STAT EMENT SHALL BE PREPA RED 29
FOR EACH FOREIGN BRA NCH OR CORPOR ATION IN THE CURRENC Y IN WHICH THE 30
BOOKS OF ACCOUNT OF THE BRANCH OR CORPOR ATION ARE REGULARLY 31
MAINTAINED. 32
3. THE PROFIT AND LOSS S TATEMENT SHALL BE 33
ADJUSTED TO CONFORM TO GENERALLY ACCEPTE D ACCOUNTING PRINCIP LES AS 34 10 HOUSE BILL 457
ADOPTED BY THE UNITED STATES FINANCIAL ACCOUNTING STANDARDS BOARD 1
FOR THE PREPARATION OF THE PROFIT AND LO SS STATEMENTS , EXCEPT AS 2
MODIFIED BY REGULATI ON. 3
4. EXCEPT AS OTHERWISE P ROVIDED BY REGULATIO N, 4
THE PROFIT AND LOSS STATEMENT OF EACH ME MBER OF THE COMBINED GROUP, 5
AND THE APPORTIONMENT FACTOR S RELATED TO EACH ST ATEMENT, WHETHER 6
UNITED STATES OR FOREIGN , SHALL BE TRANSLATED INTO THE CURRENCY IN 7
WHICH THE PARENT COM PANY MAINTAINS ITS B OOKS AND RECORDS . 8
5. INCOME APPORTIONED TO THIS STATE SHALL BE 9
EXPRESSED IN UNITED STATES DOLLARS. 10
(IV) IF A UNITARY BUSINESS INCLUDES INCOME FROM A 11
PARTNERSHIP , THE INCOME TO BE INC LUDED IN THE TOTAL I NCOME OF THE 12
COMBINED GROUP EQUAL S THE DIRECT AND IND IRECT DISTRIBUTIVE S HARE OF 13
THE PARTNERSHIP ’S UNITARY BUSINESS I NCOME ALLOCATED TO A NY MEMBER OF 14
THE COMBINED GROUP . 15
(3) THE COMBINED GROUP ’S APPORTIONABLE MARYLAND MODIFIED 16
INCOME SHALL BE ADJU STED TO ELIMINATE IN TERCOMPANY TRANSACTI ONS AS 17
DETERMINED UNDER THE INTERNAL REVENUE CODE. 18
(4) (I) SUBJECT TO SUBPARAGRA PH (II) OF THIS PARAGRAPH , THE 19
COMBINED GROUP ’S MARYLAND APPORTIONMEN T FACTOR IS A FRACTI ON: 20
1. THE NUMERATOR OF WHI CH IS THE SUM OF THE 21
CORPORATION ’S AND EACH MEMBER ’S MARYLAND FACTORS UNDE R § 10–402 OF 22
THIS SUBTITLE; AND 23
2. THE DENOMINATOR OF W HICH IS THE SUM OF THE 24
CORPORATION ’S AND EACH MEMBER ’S FACTORS UNDER § 10–402 OF THIS SUBTITLE. 25
(II) THE APPORTIONMENT FAC TORS OF PASS –THROUGH 26
ENTITY MEMBERS ARE I NCLUDED IN THE NUMER ATOR UNDER SUBPARAGR APH (I)1 27
OF THIS PARAGRAPH AN D THE DENOMINATOR UN DER SUBPARAGRAPH (I)2 OF THIS 28
PARAGRAPH TO THE EXT ENT OF THE CORPORATI ON’S DIRECT AND INDIREC T 29
DISTRIBUTIVE SHARE O F THAT ENTITY. 30
(E) (1) SUBJECT TO REGULATION S ADOPTED BY THE COMPTROLLER , A 31
CORPORATION THAT IS PART OF A COMBINED GROUP MAY ELECT TO DETERMINE ITS 32
INCOME DERIVED FROM OR ATTR IBUTABLE TO TRADE OR BUSINESS IN THE STATE 33
USING THE WATER ’S EDGE METHOD AS DES CRIBED IN THIS SUBSE CTION. 34
HOUSE BILL 457 11
(2) UNDER THE WATER ’S EDGE METHOD , THE COMBINED GROUP FOR 1
PURPOSES OF THE COMB INED REPORTING METHO D REQUIRED UNDER THI S 2
SECTION SHALL INCLUDE ONLY T HE FOLLOWING AFFILIA TED ENTITIES: 3
(I) CORPORATIONS THAT AR E INCORPORATED IN TH E UNITED 4
STATES, EXCLUDING CORPORATIO NS MAKING AN ELECTIO N UNDER §§ 931 5
THROUGH 934 OF THE INTERNAL REVENUE CODE; 6
(II) DOMESTIC INTERNATION AL SALES CORPORATIONS , AS 7
DESCRIBED IN §§ 991 THROUGH 994 OF THE INTERNAL REVENUE CODE; 8
(III) ANY CORPORATION OTHE R THAN A BANK , REGARDLESS OF 9
THE PLACE WHERE IT I S INCORPORATED , IF THE AVERAGE OF TH E CORPORATION ’S 10
PROPERTY, PAYROLL, AND SALES FACTORS WI THIN THE UNITED STATES IS 20% OR 11
MORE; 12
(IV) EXPORT TRADE CORPORA TIONS, AS DESCRIBED IN §§ 970 13
AND 971 OF THE INTERNAL REVENUE CODE; 14
(V) A FOREIGN CORPORATIO N DERIVING GAIN OR L OSS FROM 15
DISPOSITION OF AN IN TEREST IN REAL PROPE RTY IN THE UNITED STATES TO THE 16
EXTENT RECOGNIZED UN DER § 897 OF THE INTERNAL REVENUE CODE; AND 17
(VI) UNDER THE CIRCUMSTAN CES AND TO THE EXTEN T 18
PROVIDED BY REGULATI ONS THAT THE COMPTROLLER ADOPTS : 19
1. A CORPORATION NOT DE SCRIBED IN ITEMS (I) 20
THROUGH (V) OF THIS PARAGRAPH TO THE EXTENT OF THE CORPOR ATION’S INCOME 21
DERIVED FROM OR ATTR IBUTABLE TO SOURCES WITHIN THE UNITED STATES AND 22
THE CORPORATION ’S FACTORS ASSIGNABLE TO A LOCATION WITHIN THE UNITED 23
STATES; OR 24
2. AN AFFILIATED CORPOR ATION THAT IS A 25
CONTROLLED FOREIGN C ORPORATION, AS DEFINED IN § 957 OF THE INTERNAL 26
REVENUE CODE. 27
(3) THE USE OF THE WATER ’S EDGE METHOD IS SUB JECT TO THE 28
TERMS AND CONDITIONS THAT THE COMPTROLLER REQUIRES BY REGULATION , 29
INCLUDING ANY CONDIT IONS THAT ARE NECESS ARY OR APPROPRIATE T O PREVENT 30
THE AVOIDANCE OF TAX OR TO REFLECT CLEARLY T HE INCOME FOR ANY PE RIOD. 31
(F) (1) (I) AN ELECTION TO USE TH E WATER’S EDGE METHOD IN 32
ACCORDANCE WITH SUBS ECTION (E) OF THIS SECTION IS E FFECTIVE ONLY IF MAD E 33
ON A TIMELY FILED OR IGINAL RETURN FOR A TAX YEAR BY EVERY MEMBER OF THE 34 12 HOUSE BILL 457
UNITARY BUSINESS . 1
(II) THE COMPTROLLER SHALL DEV ELOP REGULATIONS 2
GOVERNING THE IMPACT , IF ANY, ON THE SCOPE OR APPL ICATION OF AN ELECTI ON 3
TO USE THE WATER ’S EDGE METHOD , INCLUDING TERMINATIO N OR DEEMED 4
ELECTION, RESULTING FROM A CHA NGE IN THE COMPOSITION OF THE UNITARY 5
BUSINESS, THE COMBINED GROUP , THE TAXPAYER MEMBERS , OR ANY OTHER 6
SIMILAR CHANGE . 7
(2) AN ELECTION TO USE TH E WATER’S EDGE METHOD SHALL 8
CONSTITUTE CONSENT T O THE REASONABLE PRO DUCTION OF DOCUMENTS AND 9
TAKING OF DEPOSITION S IN ACCORDANCE WITH T HE MARYLAND RULES. 10
(3) AT THE DISCRETION OF THE COMPTROLLER , AN ELECTION TO 11
USE THE WATER ’S EDGE METHOD MAY BE DISREGARDED IN PART OR IN WHOLE, AND 12
THE INCOME AND APPOR TIONMENT FACTORS OF ANY MEMBER OF THE TA XPAYER’S 13
UNITARY GROUP M AY BE INCLUDED IN TH E COMBINED REPORT WI THOUT REGARD 14
TO THE PROVISIONS OF THIS SECTION, IF ANY MEMBER OF THE UNITARY GROUP 15
FAILS TO COMPLY WITH ANY PROVISION OF THI S SECTION OR IF A PE RSON 16
OTHERWISE NOT INCLUD ED IN THE WATER ’S EDGE COMBINED GROU P WAS AVAILED 17
OF A SUBSTANTIAL OBJ ECTIVE OF AVOIDING STATE INCOME TAX . 18
(4) (I) SUBJECT TO SUBPARAGRA PHS (II) THROUGH (IV) OF THIS 19
PARAGRAPH , AN ELECTION TO USE T HE WATER’S EDGE METHOD IS BIN DING FOR 20
AND APPLICABLE TO TH E TAXABLE YEAR IN WH ICH THE ELECTION IS MADE AND ALL 21
TAXABLE YEARS THEREA FTER FOR A PERIOD OF 10 YEARS. 22
(II) AN ELECTION TO USE TH E WATER’S EDGE METHOD MAY BE 23
WITHDRAWN OR REINSTI TUTED AFTER WITHDRAW AL, BEFORE THE EXPIRATIO N OF 24
THE 10–YEAR PERIOD, ONLY ON WRITTEN REQU EST FOR REASONABLE C AUSE AND 25
ONLY WITH THE WRITTE N PERMISSION OF THE COMPTROLLER . 26
(III) IF THE COMPTROLLER GRANTS A WITHDRAWAL OF THE 27
ELECTION UNDER SUBPA RAGRAPH (II) OF THIS PARAGRAPH , THE COMPTROLLER 28
SHALL IMPOSE REASONA BLE CONDITIONS AS NE CESSARY TO PREVENT T HE EVASION 29
OF TAX OR TO CLEARLY REFLECT INCOME FOR THE ELECT ION PERIOD BEFORE OR 30
AFTER THE WITHDRAWAL . 31
(IV) 1. SUBJECT TO SUBSUBPARA GRAPH 2 OF THIS 32
SUBPARAGRAPH , ON THE EXPIRATION OF THE 10–YEAR PERIOD, A TAXPAYER MAY 33
WITHDRAW FROM THE EL ECTION TO USE THE WA TER’S EDGE METHOD. 34
2. THE WITHDRAWAL SHALL BE MADE IN WRITING 35
WITHIN 1 YEAR BEFORE THE EXPI RATION OF THE ELECTI ON AND IS BINDING FO R A 36 HOUSE BILL 457 13
PERIOD OF 10 YEARS, SUBJECT TO THE SAME CONDITIONS AS APPLIE D TO THE 1
ORIGINAL ELECTION . 2
3. IF NO WITHDRAWAL IS P ROPERLY MADE UNDER THIS 3
SUBPARAGRAPH , THE ELECTION TO USE THE WATER ’S EDGE METHOD SHALL 4
REMAIN IN EFFECT FOR AN ADDITIONAL 10–YEAR PERIOD, SUBJECT TO THE SAME 5
CONDITIONS AS APPLIE D TO THE ORIGINAL EL ECTION. 6
(G) (1) THE COMPTROLLER SHALL ADO PT REGULATIONS THAT ARE 7
NECESSARY AND APPROPRI ATE TO CARRY OUT THI S SECTION. 8
(2) THE REGULATIONS ADOPT ED BY THE COMPTROLLER SHALL BE 9
CONSISTENT WITH THE “PRINCIPLES FOR DETERMINING THE EXISTENCE OF A 10
UNITARY BUSINESS” (REG. IV.1.(B)) OF THE MODEL GENERAL ALLOCATION AND 11
APPORTIONMENT REGULATIONS, AS ADOPTED BY THE MULTISTATE TAX 12
COMMISSION. 13
10–811. 14
(A) (1) [Each member of] EXCEPT AS PROVIDED BY AND SUBJECT TO 15
REGULATIONS ADOPTED BY THE COMPTROLLER , an affiliated group of corporations 16
[shall file a separate income tax return] ENGAGED IN A UNITARY BUSINESS SHALL FILE 17
A COMBINED INCOME TA X RETURN REFLECTING THE AGGREGATE INCOME TAX 18
LIABILITY OF ALL THE MEMBERS OF THE AFFIL IATED GROUP THAT ARE ENGAGED IN 19
A UNITARY BUSINESS . 20
(2) THE RETURN REQUIRED U NDER PARAGRAPH (1) OF THIS 21
SUBSECTION SHALL INCLU DE THE INCOME AND AP PORTIONMENT FACTORS 22
DETERMINED UNDER § 10–402.1(D) AND (E) OF THIS TITLE, AND ANY OTHER 23
INFORMATION REQUIRED BY THE COMPTROLLER , FOR ALL MEMBERS OF T HE 24
COMBINED GROUP WHERE VER LOCATED OR DOING BUSINESS. 25
(3) (I) EXCEPT AS PROVIDED IN SUBPARAGRAPH (II) OF THIS 26
PARAGRAPH , THE COMBINED RETURN SHALL BE FILED UNDER THE NAME AND 27
FEDERAL EMPLOYER IDE NTIFICATION NUMBER O F THE PARENT CORPORA TION IF 28
THE PARENT IS A MEMB ER OF THE COMBINED G ROUP. 29
(II) IF THERE IS NO PARENT CORPORATION OR IF TH E PARENT 30
IS NOT A MEMBER OF T HE COMBINED GROUP , THE MEMBERS OF THE C OMBINED 31
GROUP SHALL CHOOSE A MEMBER TO FILE THE R ETURN. 32
(III) THE FILING MEMBER UND ER SUBPARAGRAPH (I) OR (II) OF 33
THIS PARAGRAPH SHALL CONTINUE TO FILE THE COMBINED RETURN UNLESS THE 34
FILING MEMBER IS NO LONGER THE PARENT CO RPORATION OR NO LONG ER A 35 14 HOUSE BILL 457
MEMBER OF THE COMBIN ED GROUP. 1
(4) THE RETURN SHALL BE S IGNED BY A RESPONSIB LE OFFICER OF 2
THE FILING MEMBER ON BEHALF OF THE COMBIN ED GROUP MEMBERS . 3
(5) MEMBERS OF TH E COMBINED GROUP ARE JOINTLY AND 4
SEVERALLY LIABLE FOR THE TAX LIABILITY OF THE COMBINED GROUP I NCLUDED 5
IN THE COMBINED RETU RN. 6
(B) (1) THE COMPTROLLER MAY , BY REGULATION , REQUIRE THAT THE 7
COMBINED RETURN INCL UDE THE INCOME AND A SSOCIATED APPORTIONM ENT 8
FACTORS OF ENTITIES THAT ARE NOT INCLUDE D IN THE COMBINED RE PORT BUT 9
THAT ARE MEMBERS OF A UNITARY BUSINESS I N ORDER TO REFLECT P ROPER 10
APPORTIONMENT OF INC OME OF THE ENTIRE UN ITARY BUSINESS. 11
(2) IF THE COMPTROLLER DETERMINE S THAT THE REPORTED 12
INCOME OR LOSS OF A TAXPAYER E NGAGED IN A UNITARY BUSINESS WITH A MEMB ER 13
NOT INCLUDED IN THE COMBINED GROUP REPRE SENTS AN AVOIDANCE O R EVASION 14
OF TAX, THE COMPTROLLER MAY , ON A CASE–BY–CASE BASIS, REQUIRE THAT ALL 15
OR PART OF THE INCOM E AND ASSOCIATED APP ORTIONMENT F ACTORS OF THE 16
MEMBER BE INCLUDED I N THE TAXPAYER ’S COMBINED RETURN . 17
(3) THE COMPTROLLER MAY REQUI RE: 18
(I) THE EXCLUSION OF ONE OR MORE FACTORS , THE 19
INCLUSION OF ONE OR MORE ADDITIONAL FACT ORS, OR THE EMPLOYMENT OF ANY 20
OTHER METHOD THAT WI LL FAIRLY REPRESENT THE TAXPAYER ’S BUSINESS IN THIS 21
STATE; OR 22
(II) THE EMPLOYMENT OF AN Y OTHER METHOD TO EF FECTUATE 23
A PROPER REFLECTION OF THE TOTAL AMOUNT OF INCOME SUBJECT TO 24
APPORTIONMENT AND AN EQUITABLE ALLOCATION AND APPORTIONMENT OF THE 25
COMBINED GROUP ’S OR ITS MEMBERS’ INCOME. 26
(C) THE COMPTROLLER SHALL ADO PT REGULATIONS THAT ARE 27
NECESSARY AND APPROP RIATE TO CARRY OUT T HIS SECTION. 28
SECTION 3. AND BE IT FURTHER ENACTED, That, for a taxable year beginning 29
after December 31, 2021, but before January 1, 2023, notwithstanding §§ 13–602 and 30
13–702 of the Tax – General Article, the Comptroller shall assess interest and penalties 31
under §§ 13–602 and 13–702 of the Tax – General Article if a corporation pays estimated 32
income tax for the taxable year in an amount less than 90% of the tax required to be shown 33
on the corporation’s income tax return for the taxable year. 34
SECTION 4. AND BE IT FUR THER ENACTED, That Section 1 of this Act shall be 35 HOUSE BILL 457 15
applicable to all taxable years beginning after December 31, 2021. 1
SECTION 5. AND BE IT FURTHER ENACTED, That Section 2 of this Act shall take 2
effect July 1, 2023, and shall be applicable to all taxable years beginning after December 3
31, 2023. 4
SECTION 6. AND BE IT FURTHER ENACTED, That, except as provided in Section 5
5 of this Act, this Act shall take effect July 1, 2022. 6