EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
*sb0360*
SENATE BILL 360
Q3 2lr1260
SB 511/21 – B&T
By: Senators Pinsky, Young, Watson, Jackson, McCray, Lee, Augustine, Smith,
Lam, Kelley, Washington, Rosapepe, Elfreth, and Sydnor
Introduced and read first time: January 21, 2022
Assigned to: Budget and Taxation
A BILL ENTITLED
AN ACT concerning 1
Corporate Tax Fairness Act of 2022 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; altering the distribution of certain income tax 12
revenue from corporations; requiring the Comptroller to assess interest and 13
penalties under certain circumstances; and generally relating to the Maryland 14
income tax on corporations. 15
BY repealing and reenacting, with amendments, 16
Article – Tax – General 17
Section 2–613.1, 2–614, 10–402(d), and 10–811 18
Annotated Code of Maryland 19
(2016 Replacement Volume and 2021 Supplement) 20
BY repealing and reenacting, without amendments, 21
Article – Education 22
Section 5–206(b) 23
Annotated Code of Maryland 24
(2018 Replacement Volume and 2021 Supplement) 25
BY repealing and reenacting, with amendments, 26
Article – Education 27 2 SENATE BILL 360
Section 5–206(f) 1
Annotated Code of Maryland 2
(2018 Replacement Volume and 2021 Supplement) 3
BY adding to 4
Article – Tax – General 5
Section 10–402.1 6
Annotated Code of Maryland 7
(2016 Replacement Volume and 2021 Supplement) 8
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 9
That the Laws of Maryland read as follows: 10
Article – Tax – General 11
10–402. 12
(d) (1) (i) In this paragraph: 13
1. “manufacturing corporation” means a domestic or foreign 14
corporation which is primarily engaged in activities that, in accordance with the North 15
American Industrial Classification System (NAICS), United States Manual, United States 16
Office of Management and Budget, 1997 Edition, would be included in Sector 11, 31, 32, or 17
33; and 18
2. “manufacturing corporation” does not include a refiner, as 19
defined in § 10–101 of the Business Regulation Article. 20
(ii) If a manufacturing corporation carries on its trade or business 21
within and outside the State and the trade or business is a unitary business, the part of the 22
corporation’s Maryland modified income derived from or reasonably attributable to trade 23
or business carried on in the State shall be determined using a single sales factor 24
apportionment formula, by multiplying its Maryland modified income by 100% of the sales 25
factor. 26
(iii) In filing its tax return for each year, a manufacturing corporation 27
shall certify that the NAICS Code reported on its Maryland return is consistent with that 28
reported to other government agencies. 29
(iv) If the Comptroller determines that a corporation has submitted 30
information that incorrectly classifies the corporation as a manufacturing corporation 31
under subparagraph (i) of this paragraph, the Comptroller shall reclassify the corporation 32
in an appropriate manner. 33
(2) Except as provided in paragraphs (1) and (3) of this subsection: 34
(i) for a taxable year beginning after December 31, 2017, but before 35 SENATE BILL 360 3
January 1, 2019, if the trade or business is a unitary business, the part of the corporation’s 1
Maryland modified income derived from or reasonably attributable to trade or business 2
carried on in the State shall be determined using a 3–factor apportionment fraction: 3
1. the numerator of which is the sum of the property factor, 4
the payroll factor, and 3 times the sales factor; and 5
2. the denominator of which is 5; 6
(ii) for a taxable year beginning after December 31, 2018, but before 7
January 1, 2020, if the trade or business is a unitary business, the part of the corporation’s 8
Maryland modified income derived from or reasonably attributable to trade or business 9
carried on in the State shall be determined using a 3–factor apportionment fraction: 10
1. the numerator of which is the sum of the property factor, 11
the payroll factor, and 4 times the sales factor; and 12
2. the denominator of which is 6; 13
(iii) for a taxable year beginning after December 31, 2019, but before 14
January 1, 2021, if the trade or business is a unitary business, the part of the corporation’s 15
Maryland modified income derived from or reasonably attributable to trade or business 16
carried on in the State shall be determined using a 3–factor apportionment fraction: 17
1. the numerator of which is the sum of the property factor, 18
the payroll factor, and 5 times the sales factor; and 19
2. the denominator of which is 7; 20
(iv) for a taxable year beginning after December 31, 2020, but before 21
January 1, 2022, if the trade or business is a unitary business, the part of the corporation’s 22
Maryland modified income derived from or reasonably attributable to trade or business 23
carried on in the State shall be determined using a 3–factor apportionment fraction: 24
1. the numerator of which is the sum of the property factor, 25
the payroll factor, and 6 times the sales factor; and 26
2. the denominator of which is 8; and 27
(v) for a taxable year beginning after December 31, 2021, if the trade 28
or business is a unitary business, the part of the corporation’s Maryland modified income 29
derived from or reasonably attributable to trade or business carried on in the State shall 30
be determined using a single sales factor apportionment formula, by multiplying its 31
Maryland modified income by 100% of the sales factor. 32
(3) (i) Each year a worldwide headquartered company that filed a 33
federal corporate income tax return for the taxable year may elect to calculate its Maryland 34 4 SENATE BILL 360
modified income derived from or reasonably attributable to trade or business carried on in 1
the State using a 3–factor apportionment fraction: 2
1. the numerator of which is the sum of the property factor, 3
the payroll factor, and twice the sales factor; and 4
2. the denominator of which is 4. 5
(ii) To determine under subparagraph (i) of this paragraph the 6
Maryland modified income of a corporation or group of corporations that is a worldwide 7
headquartered company that filed a federal corporate income tax return for the taxable 8
year, gross income from intangible investments, including dividends, interest, royalties, 9
and capital gains from the sale of intangible property, shall be included in the calculation 10
of the numerator based on the average of the property and payroll factors. 11
(4) The property factor under paragraphs (2) and (3) of this subsection shall 12
include: 13
(i) rented and owned real property; and 14
(ii) tangible personal property located in the State and used in the 15
trade or business. 16
(5) (I) SALES OF TANGIBLE PER SONAL PROPERTY SHALL BE 17
INCLUDED IN THE NUMERATOR OF THE SAL ES FACTOR UNDER PARA GRAPH (1), (2), 18
OR (3) OF THIS SUBSECTION I F: 19
1. THE PROPERTY IS DELI VERED OR SHIPPED TO A 20
PURCHASER WITHIN THE STATE, REGARDLESS OF THE FR EE ON BOARD (F.O.B.) 21
POINT OR OTHER CONDI TIONS OF THE SALE ; OR 22
2. THE PROPERTY IS SHIP PED FROM AN OFFICE , A 23
STORE, A WAREHOUSE , A FACTORY, OR ANY OTHER PLACE O F STORAGE IN THE 24
STATE AND THE CORPORA TION IS NOT TAXABLE IN THE STATE OF THE PURCHASER . 25
(II) FOR PURPOSES OF SUBPA RAGRAPH (I) OF THIS 26
PARAGRAPH , A CORPORATION IS TAXABLE IN A STAT E IF: 27
1. IN THAT STATE THE CO RPORATION IS SUBJECT TO A 28
NET INCOME TAX , FRANCHISE TAX MEASUR ED BY NET INCOME , FRANCHISE TAX FOR 29
THE PRIVILEGE OF DOI NG BUSINESS, OR CORPORATE STOCK T AX; OR 30
2. THAT STATE HAS JURIS DICTION TO SUBJ ECT THE 31
TAXPAYER TO A NET IN COME TAX, REGARDLESS OF WHETHE R, IN FACT, THE STATE 32
IMPOSES A TAX. 33
SENATE BILL 360 5
SECTION 2. AND BE IT FURTHER ENACTED, That the Laws of Maryland read 1
as follows: 2
Article – Education 3
5–206. 4
(b) There is the Blueprint for Maryland’s Future Fund. 5
(f) The Fund consists of: 6
(1) Revenue distributed to the Fund under Title 9, Subtitles 1D and 1E of 7
the State Government Article and §§ 2–4A–02, 2–605.1, 2–613.1, 2–1302.1, and 8
2–1303 of the Tax – General Article; 9
(2) Money appropriated in the State budget for the Fund; and 10
(3) Any other money from any other source accepted for the benefit of the 11
Fund. 12
Article – Tax – General 13
2–613.1. 14
After making the distribution required under § 2–613 of this subtitle, of the 15
remaining income tax revenue from corporations, the Comptroller shall distribute: 16
(1) [6%] 5.5% to the Higher Education Investment Fund established under 17
§ 15–106.6 of the Education Article; and 18
(2) [9.15% to the General Fund] 7.6% TO THE BLUEPRINT FOR 19
MARYLAND’S FUTURE FUND ESTABLISHED UNDE R § 5–206 OF THE EDUCATION 20
ARTICLE. 21
2–614. 22
(a) [(1) Except as provided in paragraph (2) of this subsection, after] AFTER 23
making the distributions required under §§ 2–613 and 2–613.1 of this subtitle, the 24
Comptroller shall distribute monthly [17.2%] 15.5% of the remaining income tax revenue 25
from corporations to a special fund to be distributed as provided in subsection (b) of this 26
section. 27
[(2) The percent of the remaining income tax revenue from corporations 28
distributed to a special fund to be distributed as provided in subsection (b) of this section 29
shall be: 30
6 SENATE BILL 360
(i) 24% for the fiscal year beginning July 1, 2011; 1
(ii) 9.5% for the fiscal year beginning July 1, 2012; and 2
(iii) 19.5% for each fiscal year beginning on or after July 1, 2013, but 3
before July 1, 2016.] 4
(b) (1) [(i) Except as provided in subparagraph (ii) of this paragraph, from] 5
FROM the special fund, the Comptroller shall distribute an amount equal to [17.2%] 15.5% 6
of the cost to administer the income tax on corporations to an administrative cost account. 7
[(ii) The percent of the cost to administer the income tax on 8
corporations that is distributed to an administrative cost account shall be: 9
1. 24% for the fiscal year beginning July 1, 2011; 10
2. 9.5% for the fiscal year beginning July 1, 2012; and 11
3. 19.5% for each fiscal year beginning on or after July 1, 12
2013, but before July 1, 2016.] 13
(2) After making the distribution required under paragraph (1) of this 14
subsection, the Comptroller shall distribute the balance in the special fund to the Gasoline 15
and Motor Vehicle Revenue Account in the Transportation Trust Fund. 16
10–402.1. 17
(A) (1) IN THIS SECTION THE F OLLOWING WORDS HAVE THE MEANINGS 18
INDICATED. 19
(2) “COMBINED GROUP ” MEANS A GROUP OF COR PORATIONS: 20
(I) THAT IS ENGAGED IN A UNITARY BUSINESS ; 21
(II) IN WHICH MORE THAN 50% OF THE VOTING STOCK OF EACH 22
MEMBER IS DIRECTLY O R INDIRECTLY OWNED BY : 23
1. A COMMON OWNER OR CO MMON OWNERS , EITHER 24
CORPORATE OR NONCORP ORATE; OR 25
2. ONE OR MORE MEMBER C ORPORATIONS OF THE 26
GROUP; 27
(III) THE MEMBERS OF WHICH ARE SUBJECT TO THE I NCOME TAX 28
OR WOULD BE SUBJECT TO THE INCOME TAX IF DOING BUSINESS IN TH E STATE; AND 29 SENATE BILL 360 7
(IV) CONSISTING OF ANY OT HER MEMBERS UNDER TH E 1
CIRCUMSTANCES AND TO THE EXTENT PROVIDED IN REGULATIONS ADOPT ED BY 2
THE COMPTROLLER TO PREVEN T THE AVOIDANCE OF T AX OR TO REFLECT CLE ARLY 3
THE INCOME OF ANY ME MBER OF THE COM BINED GROUP FOR ANY PERIOD. 4
(3) “COMBINED RETURN ” MEANS A TAX RETURN F OR THE COMBINED 5
GROUP CONTAINING INF ORMATION AS PROVIDED IN THIS SECTION OR O THERWISE 6
REQUIRED BY THE COMPTROLLER . 7
(4) “UNITARY BUSINESS ” MEANS A SINGLE ECONO MIC ENTERPRISE 8
THAT IS MADE EITHER OF SEPAR ATE PARTS OF A SINGL E BUSINESS ENTITY OR OF A 9
COMMONLY CONTROLLED GROUP OF BUSINESS EN TITIES THAT ARE SUFF ICIENTLY 10
INTERDEPENDENT , INTEGRATED, AND INTERRELATED THR OUGH THEIR ACTIVITIE S 11
SO AS TO PROVIDE MUT UAL BENEFIT THAT PRO DUCES A SHARING OR EXCHANGE OF 12
VALUE AMONG THEM AND A SIGNIFICANT FLOW O F VALUE TO THE SEPAR ATE PARTS. 13
(B) (1) THE TERM “UNITARY BUSINESS ” SHALL BE CONSTRUED T O THE 14
BROADEST EXTENT ALLO WED UNDER THE U.S. CONSTITUTION. 15
(2) A BUSINESS CONDUCTED D IRECTLY OR INDIRE CTLY BY ONE 16
CORPORATION IS A UNI TARY BUSINESS WITH R ESPECT TO THAT PORTI ON OF A 17
BUSINESS CONDUCTED B Y ANOTHER CORPORATIO N THROUGH ITS DIRECT OR 18
INDIRECT INTEREST IN A PARTNERSHIP IF THE REQUIREMENTS OF SUBS ECTION 19
(A)(4) OF THIS SECTION ARE SATISFIED, INCLUDING IF THERE IS SYN ERGY AND AN 20
EXCHANGE AND FLOW OF VALUE BETWEEN THE TW O PARTS OF THE BUSIN ESS AND 21
THE TWO CORPORATIONS ARE MEMBERS OF THE S AME COMMONLY CONTROL LED 22
GROUP. 23
(3) A BUSINESS CONDUCTED B Y A PARTNERSHIP SHAL L BE TREATED 24
AS CONDUCTED BY ITS PARTNERS, WHETHER DIRECTLY HEL D OR INDIRECTLY HELD 25
THROUGH A SERIES OF PARTNERSHIPS , TO THE EXTENT OF THE PARTNER’S 26
DISTRIBUTIVE SHARE O F THE PARTNERSHIP ’S INCOME, REGARDLESS OF THE 27
PERCENTAGE OF THE PA RTNER’S OWNERSHIP INTEREST OR ITS DISTRIBUTIVE OR 28
ANY OTHER SHARE OF PARTNE RSHIP INCOME. 29
(C) (1) EXCEPT AS PROVIDED BY AND SUBJECT TO REGUL ATIONS 30
ADOPTED BY THE COMPTROLLER , FOR ALL TAXABLE YEAR S BEGINNING AFTER 31
DECEMBER 31, 2022, A CORPORATION ENGAGE D IN A UNITARY BUSIN ESS SHALL 32
FILE A COMBINED RETU RN, REPORTING AND PAYING TAX ON WORLDWIDE TAXABLE 33
INCOME AS A COMBINED GROUP, REFLECTING THE AGGRE GATE INCOME TAX 34
LIABILITY OF ALL MEM BERS OF THE COMBINED GROUP THAT ARE ENGAG ED IN A 35
UNITARY BUSINESS . 36
8 SENATE BILL 360
(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 PARAGRAPH (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 AND EACH ME MBER’S 14
MARYLAND MODIFIED INC OME. 15
(II) 1. SUBJECT TO SUBSU BPARAGRAPH 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 MODIFIE D INCOME AS CALCULAT ED UNDER § 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 CORPORATION I N THE CURRENCY 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
ADOPTED BY THE UNITED STATES FINANCIAL ACCOUNTING STANDARDS BOARD 35 SENATE BILL 360 9
FOR THE PREPARATION OF THE PROFIT AND LO SS STATEMENTS , EXCEPT AS 1
MODIFIED BY REGULATI ON. 2
4. EXCEPT AS OTHERWISE P ROVIDED BY REGULATIO N, 3
THE PROFIT AND LOSS STATEMENT OF EACH ME MBER OF THE COMBINED GROUP, 4
AND THE APPORTIONMEN T FACTORS RE LATED TO EACH STATEM ENT, WHETHER 5
UNITED STATES OR FOREIGN , SHALL BE TRANSLATED INTO THE CURRENCY IN 6
WHICH THE PARENT COM PANY MAINTAINS ITS B OOKS AND RECORDS . 7
5. INCOME APPORTIONED TO THE STATE SHALL BE 8
EXPRESSED IN UNITED STATES DOLLARS . 9
(IV) IF A UNITARY BUSINESS INC LUDES INCOME FROM A 10
PARTNERSHIP , THE INCOME TO BE INC LUDED IN THE TOTAL I NCOME OF THE 11
COMBINED GROUP EQUAL S THE DIRECT AND IND IRECT DISTRIBUTIVE S HARE OF 12
THE PARTNERSHIP ’S UNITARY BUSINESS I NCOME ALLOCATED TO A NY MEMBER OF 13
THE COMBINED GROUP. 14
(3) THE COMBINED GROUP ’S APPORTIONABLE MARYLAND MODIFIED 15
INCOME SHALL BE ADJU STED TO ELIMINATE IN TERCOMPANY TRANSACTI ONS AS 16
DETERMINED UNDER THE INTERNAL REVENUE CODE. 17
(4) (I) SUBJECT TO SUBPARAGRA PH (II) OF THIS PARAGRAPH , THE 18
COMBINED GROUP ’S MARYLAND APPORTIONMEN T FACTOR IS A FRACTI ON: 19
1. THE NUMERATOR OF WHI CH IS THE SUM OF THE 20
CORPORATION ’S AND EACH MEMBER ’S MARYLAND FACTORS UNDE R § 10–402 OF 21
THIS SUBTITLE; AND 22
2. THE DENOMINATOR OF W HICH IS THE SUM OF T HE 23
CORPORATION ’S AND EACH MEMBER’S FACTORS UNDER § 10–402 OF THIS SUBTITLE. 24
(II) THE APPORTIONMENT FAC TORS OF PASS –THROUGH 25
ENTITY MEMBERS ARE I NCLUDED IN THE NUMER ATOR UNDER SUBPARAGRAPH (I)1 26
OF THIS PARAGRAPH AN D THE DENOMINATOR UN DER SUBPARAGRAPH (I)2 OF THIS 27
PARAGRAPH TO TH E EXTENT OF THE CORP ORATION’S DIRECT AND INDIREC T 28
DISTRIBUTIVE SHARE O F THAT ENTITY. 29
(E) (1) SUBJECT TO REGULATION S ADOPTED BY THE COMPTROLLER , A 30
CORPORATION THAT IS PART OF A COMBINED GROUP MAY ELECT TO DETERMINE ITS 31
INCOME DERIVED FROM OR ATTRIBUTABLE TO TRADE OR BUSINESS IN THE STATE 32
USING THE WATER ’S EDGE METHOD AS DES CRIBED IN THIS SUBSE CTION. 33
(2) UNDER THE WATER ’S EDGE METHOD , THE COMBINED GROUP FOR 34 10 SENATE BILL 360
PURPOSES OF THE COMB INED REPORTING METHO D REQUIRED UNDER THI S 1
SECTION SHALL INCLUD E ONLY THE FOLLO WING AFFILIATED ENTI TIES: 2
(I) CORPORATIONS THAT AR E INCORPORATED IN TH E UNITED 3
STATES, EXCLUDING CORPORATIO NS MAKING AN ELECTIO N UNDER §§ 931 4
THROUGH 934 OF THE INTERNAL REVENUE CODE; 5
(II) DOMESTIC INTERNATION AL SALES CORPORATION S, AS 6
DESCRIBED IN §§ 991 THROUGH 994 OF THE INTERNAL REVENUE CODE; 7
(III) ANY CORPORATION OTHE R THAN A BANK , REGARDLESS OF 8
THE PLACE WHERE IT I S INCORPORATED , IF THE AVERAGE OF TH E CORPORATION ’S 9
PROPERTY, PAYROLL, AND SALES FACTORS WI THIN THE UNITED STATES IS 20% OR 10
MORE; 11
(IV) EXPORT TRADE CORPORA TIONS, AS DESCRIBED IN §§ 970 12
AND 971 OF THE INTERNAL REVENUE CODE; 13
(V) A FOREIGN CORPORATIO N DERIVING GAIN OR L OSS FROM 14
DISPOSITION OF AN IN TEREST IN REAL PROPE RTY IN THE UNITED STATES TO THE 15
EXTENT RECOGNIZED UN DER § 897 OF THE INTERNAL REVENUE CODE; AND 16
(VI) UNDER THE CIRCUMSTAN CES AND TO THE EXTEN T 17
PROVIDED BY REGULATI ONS THAT THE COMPTROLLER ADOPTS : 18
1. A CORPORATION NOT DE SCRIBED IN ITEMS (I) 19
THROUGH (V) OF THIS PARAGRAPH TO THE EXTENT OF THE CO RPORATION’S INCOME 20
DERIVED FROM OR ATTR IBUTABLE TO SOURCES WITHIN THE UNITED STATES AND 21
THE CORPORATION ’S FACTORS ASSIGNABLE TO A LOCATION WITHIN THE UNITED 22
STATES; OR 23
2. AN AFFILIATED CORPOR ATION THAT IS A 24
CONTROLLED FOREIGN C ORPORATION , AS DEFINED IN § 957 OF THE INTERNAL 25
REVENUE CODE. 26
(3) THE USE OF THE WATER ’S EDGE METHOD IS SUB JECT TO THE 27
TERMS AND CONDITIONS THAT THE COMPTROLLER REQUIRES BY REGULATION , 28
INCLUDING ANY CONDIT IONS THAT ARE NECESS ARY OR APPROPRIATE T O PREVENT 29
THE AVOIDANCE OF TAX OR TO REFLECT CLEARLY THE INCOME F OR ANY PERIOD. 30
(F) (1) (I) AN ELECTION TO USE TH E WATER’S EDGE METHOD IN 31
ACCORDANCE WITH SUBS ECTION (E) OF THIS SECTION IS E FFECTIVE ONLY IF MAD E 32
ON A TIMELY FILED , ORIGINAL RETURN FOR A TAX YEAR BY EVERY MEMBER OF THE 33
UNITARY BUSINE SS. 34 SENATE BILL 360 11
(II) THE COMPTROLLER SHALL DEV ELOP REGULATIONS 1
GOVERNING THE IMPACT , IF ANY, ON THE SCOPE OR APPL ICATION OF AN ELECTI ON 2
TO USE THE WATER ’S EDGE METHOD , INCLUDING TERMINATIO N OR DEEMED 3
ELECTION, RESULTING FROM A CHA NGE IN THE COMPOSITI ON OF THE UNITARY 4
BUSINESS, THE COMBINED GROUP , THE TAXPAYER MEMBERS , OR ANY OTHER 5
SIMILAR CHANGE . 6
(2) AN ELECTION TO USE TH E WATER’S EDGE METHOD SHALL 7
CONSTITUTE CONSENT T O THE REASONABLE PRO DUCTION OF DOCUMENTS AND 8
TAKING OF DEPOSITION S IN ACCORDANCE WITH THE MARYLAND RULES. 9
(3) AT THE DISCRETION OF THE COMPTROLLER , AN ELECTION TO 10
USE THE WATER ’S EDGE METHOD MAY BE DISREGARDED IN PART OR IN WHOLE, AND 11
THE INCOME AND APPOR TIONMENT FACTORS OF ANY MEMBER OF THE TA XPAYER’S 12
UNITARY GROUP MAY BE INCLUDED IN THE COM BINED REPORT WITHOUT REGARD 13
TO THE PROVISIONS OF THIS SECTION, IF ANY MEMBER OF THE UNITARY GROUP 14
FAILS TO COMPLY WITH ANY PROVISION OF THI S SECTION OR IF A PE RSON 15
OTHERWISE NOT INCLUD ED IN THE WATER ’S EDGE COMBINED GROU P WAS AVAILED 16
OF A SUBSTANTIAL OBJ ECTIVE OF AVOIDING STATE INCOME TAX . 17
(4) (I) SUBJECT TO SUBPARAGRA PHS (II) THROUGH (IV) OF THIS 18
PARAGRAPH , AN ELECTION TO USE T HE WATER’S EDGE METHOD IS BIN DING FOR 19
AND APPLICABLE TO TH E TAXABLE YEAR IN WH ICH THE ELECTION IS MADE AND ALL 20
TAXABLE YEARS THE REAFTER FOR A PERIOD OF 10 YEARS. 21
(II) AN ELECTION TO USE TH E WATER’S EDGE METHOD MAY BE 22
WITHDRAWN OR REINSTI TUTED AFTER WITHDRAW AL, BEFORE THE EXPIRATIO N OF 23
THE 10–YEAR PERIOD, ONLY ON WRITTEN REQU EST FOR REASONABLE C AUSE AND 24
ONLY WITH THE WRITTE N PERMISSION OF THE COMPTROLLER . 25
(III) IF THE COMPTROLLER GRANTS A WITHDRAWAL OF THE 26
ELECTION UNDER SUBPA RAGRAPH (II) OF THIS PARAGRAPH , THE COMPTROLLER 27
SHALL IMPOSE REASONA BLE CONDITIONS AS NE CESSARY TO PREVENT T HE EVASION 28
OF TAX OR TO CLEARLY REFLECT INCO ME FOR THE ELECTION PERIOD BEFORE OR 29
AFTER THE WITHDRAWAL . 30
(IV) 1. SUBJECT TO SUBSUBPARA GRAPH 2 OF THIS 31
SUBPARAGRAPH , ON THE EXPIRATION OF THE 10–YEAR PERIOD, A TAXPAYER MAY 32
WITHDRAW FROM THE EL ECTION TO USE THE WA TER’S EDGE METHOD . 33
2. THE WITHDRA WAL SHALL BE MADE IN WRITING 34
WITHIN 1 YEAR BEFORE THE EXPI RATION OF THE ELECTI ON AND IS BINDING FO R A 35
PERIOD OF 10 YEARS, SUBJECT TO THE SAME CONDITIONS AS APPLIE D TO THE 36 12 SENATE BILL 360
ORIGINAL ELECTION . 1
3. IF NO WITHDRAWAL IS P ROPERLY MADE UNDER T HIS 2
SUBPARAGRAPH , THE ELECTION TO USE THE WATER ’S EDGE METHOD SHALL 3
REMAIN IN EFFECT FOR AN ADDITIONAL 10–YEAR PERIOD, SUBJECT TO THE SAME 4
CONDITIONS AS APPLIE D TO THE ORIGINAL EL ECTION. 5
(G) (1) THE COMPTROLLER SHALL ADO PT REGULATIONS THAT ARE 6
NECESSARY AND APPROP RIATE TO CARRY OUT THIS SE CTION. 7
(2) THE REGULATIONS ADOPT ED BY THE COMPTROLLER SHALL BE 8
CONSISTENT WITH THE “PRINCIPLES FOR DETERMINING THE EXISTENCE OF A 9
UNITARY BUSINESS” (REG. IV.1.(B)) OF THE MODEL GENERAL ALLOCATION AND 10
APPORTIONMENT REGULATIONS, AS ADOPTED BY THE MULTISTATE TAX 11
COMMISSION. 12
10–811. 13
(A) (1) [Each member of] EXCEPT AS PROVIDED BY AND SUBJECT TO 14
REGULATIONS ADOPTED BY THE COMPTROLLER , an affiliated group of corporations 15
[shall file a separate income tax return] ENGAGED IN A UNITARY BUSINESS SHALL FILE 16
A COMBINED INCOME TA X RETURN REFLECTING THE AGGREGATE INCOME TAX 17
LIABILITY OF ALL THE MEMBERS OF THE AFFIL IATED GROUP THAT ARE ENGAGED IN 18
A UNITARY BUSINESS . 19
(2) THE RETURN REQUIRED U NDER PARAGRAPH (1) OF THIS 20
SUBSECTION SHALL INC LUDE THE INCOME AND APPORTION MENT FACTORS 21
DETERMINED UNDER § 10–402.1(D) AND (E) OF THIS TITLE, AND ANY OTHER 22
INFORMATION REQUIRED BY THE COMPTROLLER , FOR ALL MEMBERS OF T HE 23
COMBINED GROUP WHERE VER LOCATED OR DOING BUSINESS. 24
(3) (I) EXCEPT AS PROVIDED IN SUBPARAGRAPH (II) OF THIS 25
PARAGRAPH , THE COMBINED RETURN SHALL BE FILED UNDER THE NAME AND 26
FEDERAL EMPLOYER IDE NTIFICATION NUMBER O F THE PARENT CORPORA TION IF 27
THE PARENT IS A MEMB ER OF THE COMBINED G ROUP. 28
(II) IF THERE IS NO PARENT CORPORATION OR IF TH E PARENT 29
IS NOT A MEMBER OF T HE COMBINED GROUP , THE MEMBERS OF THE C OMBINED 30
GROUP SHALL CHOOSE A MEMBER TO FILE THE R ETURN. 31
(III) THE FILING MEMBER UND ER SUBPARAGRAPH (I) OR (II) OF 32
THIS PARAGRAPH SHALL CONTINUE TO FILE THE COMBINED RETURN UNLE SS THE 33
FILING MEMBER IS NO LONGER THE PARENT CORPORATI ON OR NO LONGER A 34
MEMBER OF THE COMBIN ED GROUP. 35 SENATE BILL 360 13
(4) THE RETURN SHALL BE S IGNED BY A RESPONSIB LE OFFICER OF 1
THE FILING MEMBER ON BEHALF OF THE COMBIN ED GROUP MEMBERS . 2
(5) MEMBERS OF THE COMBIN ED GROUP ARE JOINT LY AND 3
SEVERALLY LIABLE FOR THE TAX LIABILITY OF THE COMBINED GROUP I NCLUDED 4
IN THE COMBINED RETU RN. 5
(B) (1) THE COMPTROLLER MAY , BY REGULATION , REQUIRE THAT THE 6
COMBINED RETURN INCL UDE THE INCOME AND A SSOCIATED APPORTIONM ENT 7
FACTORS OF ENTITIES THAT ARE NOT INCLUDED IN THE COMBINED REPORT BUT 8
THAT ARE MEMBERS OF A UNITARY BUSINESS I N ORDER TO REFLECT P ROPER 9
APPORTIONMENT OF INC OME OF THE ENTIRE UN ITARY BUSINESS. 10
(2) IF THE COMPTROLLER DETERMINE S THAT THE REPORTED 11
INCOME OR LOSS OF A TAXPAYER ENGAGED I N A UNITARY BUSINESS WITH A MEMBER 12
NOT INCLUDED IN THE COMBINED GROUP REPRE SENTS AN AVOIDANCE O R EVASION 13
OF TAX, THE COMPTROLLER MAY , ON A CASE–BY–CASE BASIS, REQUIRE THAT ALL 14
OR PART OF THE INCOM E AND ASSOCIATED APP ORTIONMENT FACTORS O F THE 15
MEMBER BE INCL UDED IN THE TAXPAYER ’S COMBINED RETURN . 16
(3) THE COMPTROLLER MAY REQUI RE: 17
(I) THE EXCLUSION OF ONE OR MORE FACTORS , THE 18
INCLUSION OF ONE OR MORE ADDITIONAL FACT ORS, OR THE EMPLOYMENT OF ANY 19
OTHER METHOD THAT WI LL FAIRLY REPRESENT THE TAXPAYER ’S BUSINESS IN TH E 20
STATE; OR 21
(II) THE EMPLOYMENT OF AN Y OTHER METHOD TO EF FECTUATE 22
A PROPER REFLECTION OF THE TOTAL AMOUNT OF INCOME SUBJECT TO 23
APPORTIONMENT AND AN EQUITABLE ALLOCATION AND APPORTIONMENT OF THE 24
COMBINED GROUP ’S OR ITS MEMBERS ’ INCOME. 25
(C) THE COMPTROLLER SHALL ADO PT REGULATIONS THAT ARE 26
NECESSARY AND APPROP RIATE TO CARRY OUT T HIS SECTION. 27
SECTION 3. AND BE IT FURTHER ENACTED, That, for a taxable year beginning 28
after December 31, 2021, but before January 1, 2023, notwithstanding §§ 13–602 and 29
13–702 of the Tax – General Article, the Comptroller shall assess interest and penalties 30
under §§ 13–602 and 13–702 of the Tax – General Article if a corporation pays estimated 31
income tax for the taxable year in an amount less than 90% of the tax required to be shown 32
on the corporation’s income tax return for the taxable year. 33
SECTION 4. AND BE IT FURTHER ENACTED, That Section 1 of this Act shall be 34
applicable to all taxable years beginning after December 31, 2021. 35 14 SENATE BILL 360
SECTION 5. AND BE IT FURTHER ENACTED, That Section 2 of this Act shall take 1
effect July 1, 2023, and shall be applicable to all taxable years beginning after December 2
31, 2022. 3
SECTION 6. AND BE IT FURTHER ENACTED, That, except as provided in Section 4
5 of this Act, this Act shall take effect July 1, 2022. 5