EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
*hb0337*
HOUSE BILL 337
Q3 3lr1129
By: Delegates Palakovich Carr, Charkoudian, Cullison, Ebersole, Grossman, Hill,
Ivey, Lehman, R. Lewis, McCaskill, Moon, Ruth, Stewart, Terrasa,
Washington, Wells, and Wilkins
Introduced and read first time: January 25, 2023
Assigned to: Ways and Means
A BILL ENTITLED
AN ACT concerning 1
Income Tax – Capital Gains, Dividends, and Foreign–Derived Intangible Income 2
– Alterations 3
(Investing in Marylanders Act of 2023) 4
FOR the purpose of providing for an additional State individual income tax rate on the net 5
capital gains of individuals, subject to certain exceptions; providing addition 6
modifications under the Maryland income tax for the amount of certain deductions 7
under the Internal Revenue Code for dividends paid for real estate investment 8
trusts, foreign–derived intangible income, and certain dividends received from a 9
foreign corporation; altering a certain addition modification under the Maryland 10
income tax for certain corporate interest expenses and intangible expenses; altering 11
a certain subtraction modification under the Maryland income tax for certain 12
dividends received from a foreign corporation to preclude inclusion of certain income 13
treated as dividends under the Internal Revenue Code; and generally relating to the 14
Maryland income tax. 15
BY repealing and reenacting, with amendments, 16
Article – Tax – General 17
Section 10–105(a), 10–305, 10–306.1, and 10–307(d) 18
Annotated Code of Maryland 19
(2022 Replacement Volume) 20
BY repealing and reenacting, without amendments, 21
Article – Tax – General 22
Section 10–204(a) and 10–307(a) 23
Annotated Code of Maryland 24
(2022 Replacement Volume) 25
BY adding to 26 2 HOUSE BILL 337
Article – Tax – General 1
Section 10–204(m) 2
Annotated Code of Maryland 3
(2022 Replacement Volume) 4
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 5
That the Laws of Maryland read as follows: 6
Article – Tax – General 7
10–105. 8
(a) (1) For an individual other than an individual described in paragraph (2) 9
of this subsection, the State income tax rate is: 10
(i) 2% of Maryland taxable income of $1 through $1,000; 11
(ii) 3% of Maryland taxable income of $1,001 through $2,000; 12
(iii) 4% of Maryland taxable income of $2,001 through $3,000; 13
(iv) 4.75% of Maryland taxable income of $3,001 through $100,000; 14
(v) 5% of Maryland taxable income of $100,001 through $125,000; 15
(vi) 5.25% of Maryland taxable income of $125,001 through $150,000; 16
(vii) 5.5% of Maryland taxable income of $150,001 through $250,000; 17
and 18
(viii) 5.75% of Maryland taxable income in excess of $250,000. 19
(2) For spouses filing a joint return or for a surviving spouse or head of 20
household as defined in § 2 of the Internal Revenue Code, the State income tax rate is: 21
(i) 2% of Maryland taxable income of $1 through $1,000; 22
(ii) 3% of Maryland taxable income of $1,001 through $2,000; 23
(iii) 4% of Maryland taxable income of $2,001 through $3,000; 24
(iv) 4.75% of Maryland taxable income of $3,001 through $150,000; 25
(v) 5% of Maryland taxable income of $150,001 through $175,000; 26
(vi) 5.25% of Maryland taxable income of $175,001 through $225,000; 27
HOUSE BILL 337 3
(vii) 5.5% of Maryland taxable income of $225,001 through $300,000; 1
and 2
(viii) 5.75% of Maryland taxable income in excess of $300,000. 3
(3) (I) EXCEPT AS PROVIDED IN SUBPARAGRAPH (II) OF THIS 4
PARAGRAPH , IF THE MARYLAND TAXABLE INCO ME OF AN INDIVIDUAL DESCRIBED 5
IN PARAGRAPH (1) OR (2) OF THIS SUBSECTION INCLUDES ANY AMOUNT OF NET 6
CAPITAL GAIN, AS DEFINED AND DETER MINED UNDER THE INTERNAL REVENUE 7
CODE, THE STATE INCOME TAX FOR THE INDIVIDUAL IS TH E SUM OF: 8
1. THE RATES SPECIFIED IN PARAGRAPH (1) OR (2) OF 9
THIS SUBSECTION APPL IED TO MARYLAND TAXABLE INCOME ; AND 10
2. AN ADDITIONAL 1% OF THE AMOUNT OF NET CAPITAL 11
GAIN INCLUDED IN THE INDIVIDUAL’S MARYLAND TAXABLE INCO ME. 12
(II) TO THE EXTENT INCLUDE D IN CALCULATING NET CAPITAL 13
GAIN FOR FEDERAL INC OME TAX PURPOSES , ANY AMOUNT OF CAPITA L GAIN FROM 14
THE SALE OR EXCHANGE OF THE FOLLOWING ASS ETS IS NOT SUBJECT T O THE 15
ADDITIONAL 1% TAX RATE SPECIFIED I N SUBPARAGRAPH (I)2 OF THIS PARAGRAPH : 16
1. ANY RESIDENTIAL DWEL LING SOLD FOR LESS T HAN 17
$1,000,000 THAT IS THE INDIVIDU AL’S PRIMARY RESIDENCE , INCLUDING THE LAND 18
ON WHICH THE DWELLIN G IS LOCATED AND ANY ACCESSORY DWELLING U NIT 19
ASSOCIATED WITH THE RESIDENCE, IF THE DWELLING IS A SINGLE–FAMILY HOME , A 20
TOWN HOUSE , A ROW HOME , A RESIDENTIAL CONDOM INIUM UNIT, OR A 21
RESIDENTIAL COOPERAT IVE UNIT; 22
2. ASSETS HELD IN: 23
A. A CASH OR DEFERRED A RRANGEMENT PLAN UNDE R § 24
401(K) OF THE INTERNAL REVENUE CODE; 25
B. A TAX–SHELTERED ANNUITY OR CUSTODIAL ACCOUNT 26
UNDER § 403(B) OF THE INTERNAL REVENUE CODE; 27
C. A DEFERRED COMPENSAT ION PLAN UNDER § 457(B) 28
OF THE INTERNAL REVENUE CODE; 29
D. AN INDIVIDUAL RETIRE MENT ACCOUNT OR 30
INDIVIDUAL RETIREMEN T ANNUITY UNDER § 408 OF THE INTERNAL REVENUE 31
CODE; 32
4 HOUSE BILL 337
E. A ROTH INDIVIDUAL RETIR EMENT ACCOUNT UNDER § 1
408A OF THE INTERNAL REVENUE CODE; OR 2
F. A DEFINED CONTRIBUTI ON PLAN, A DEFINED BENEFIT 3
PLAN, OR A SIMILAR RETIREM ENT SAVINGS PLAN ; 4
3. CATTLE, HORSES, OR BREEDING LIVESTOC K HELD 5
FOR MORE THAN 12 MONTHS IF, FOR THE TAXABLE YEAR OF THE SALE OR 6
EXCHANGE, MORE THAN 50% OF THE INDIVIDUAL ’S GROSS INCOME FOR T HE 7
TAXABLE YEAR , INCLUDING INCOME FRO M THE SALE OR EXCHAN GE OF CAPITAL 8
ASSETS, IS FROM FARMING OR R ANCHING; 9
4. LAND THAT IS SUBJECT TO A CONSERVATION , 10
AGRICULTURAL , OR FOREST PRESERVATI ON EASEMENT OR THAT WILL BE SUBJECT 11
TO A CONSERVATION , AGRICULTURAL , OR FOREST PRESERVATI ON EASEMENT ON 12
THE SALE OR EXCHANGE OF THE LAND; 13
5. PROPERTY USED IN A T RADE OR BUSINESS , THE COST 14
OF WHICH IS DEDUCTIB LE UNDER § 179 OF THE INTERNAL REVENUE CODE; OR 15
6. AFFORDABLE HOUSING OWNED BY A NONPROFIT 16
ORGANIZATION . 17
10–204. 18
(a) To the extent excluded from federal adjusted gross income, the amounts under 19
this section are added to the federal adjusted gross income of a resident to determine 20
Maryland adjusted gross income. 21
(M) THE ADDITION UNDER SU BSECTION (A) OF THIS SECTION INCL UDES ANY 22
AMOUNT DEDUCTED UNDER § 857 OF THE INTERNAL REVENUE CODE FOR 23
DIVIDENDS PAID FOR R EAL ESTATE INVESTMEN T TRUSTS. 24
10–305. 25
(a) To the extent excluded from federal taxable income, the amounts under this 26
section are added to the federal taxable income of a corporation to determine Maryland 27
modified income. 28
(b) The addition under subsection (a) of this section includes the net capital loss 29
carryback, as defined in § 1212 of the Internal Revenue Code. 30
(c) The addition under subsection (a) of this section includes any taxes based on 31
net income that are imposed by any state or by a political subdivision of any state. 32
HOUSE BILL 337 5
(d) The addition under subsection (a) of this section includes the additions 1
required for an individual under: 2
(1) § 10–204(b) of this title (Dividends and interest from another state or 3
local obligation); 4
(2) § 10–204(c)(2) of this title (Federal tax–exempt income); 5
(3) § 10–204(e) of this title (Oil percentage depletion allowance); 6
(4) § 10–204(i) of this title (Deduction for qualified production activities 7
income); 8
(5) § 10–204(j) of this title (Deduction for costs for security clearance 9
administrative expenses and construction and equipment costs incurred to construct or 10
renovate a sensitive compartmented information facility); [and] 11
(6) § 10–204(l) of this title (Deduction for donations to qualified permanent 12
endowment funds); AND 13
(7) § 10–204(M) OF THIS TITLE (DEDUCTION FOR DIVIDEN DS PAID 14
FOR REAL ESTATE INVESTMENT TR USTS). 15
(E) THE ADDITION UNDER SU BSECTION (A) OF THIS SECTION INCL UDES ANY 16
AMOUNT DEDUCTED UNDER: 17
(1) § 250 OF THE INTERNAL REVENUE CODE FOR FOREIGN –DERIVED 18
INTANGIBLE INCOME ; AND 19
(2) §§ 243 AND 245A OF THE INTERNAL REVENUE CODE FOR 20
DIVIDENDS RECEIVED F ROM A FOREIGN CORPORATION . 21
10–306.1. 22
(a) (1) In this section the following words have the meanings indicated. 23
(2) “Aggregate effective tax rate” means the sum of the effective rates of 24
tax imposed by this State, other states or possessions of the United States, and foreign 25
nations that have entered into comprehensive tax treaties with the United States 26
government, where a related member receiving a payment of interest expense or intangible 27
expense is subject to tax and where the measure of the tax imposed included the payment. 28
(3) [“Bank” means: 29
(i) a bank holding company as defined in the federal Bank Holding 30
Company Act of 1956, as amended, or a bank, trust company, savings bank, or savings and 31 6 HOUSE BILL 337
loan association incorporated or chartered under the laws of this State, another state, or 1
the United States; or 2
(ii) a subsidiary or affiliate of an entity described in item (i) of this 3
paragraph. 4
(4)] “Effective rate of tax imposed” means, as to any state, possession of the 5
United States, or foreign nation, the maximum statutory tax rate imposed by the state, 6
possession, or foreign nation multiplied by the applicable apportionment rate. 7
[(5)] (4) “Intangible expense” means: 8
(i) an expense, loss, or cost for, related to, or in connection directly 9
or indirectly with the direct or indirect acquisition, use, maintenance, management, 10
ownership, sale, exchange, or any other disposition of intangible property, to the extent the 11
expense, loss, or cost is allowed as a deduction or cost in determining taxable income for 12
the taxable year under the Internal Revenue Code; 13
(ii) a loss related to or incurred in connection directly or indirectly 14
with factoring transactions or discounting transactions; 15
(iii) a royalty, patent, technical, or copyright fee; 16
(iv) a licensing fee; or 17
(v) any other similar expense or cost. 18
[(6)] (5) “Intangible property” means patents, patent applications, trade 19
names, trademarks, service marks, copyrights, and similar types of intangible assets. 20
[(7)] (6) “Interest expense” means an amount directly or indirectly 21
allowed as a deduction under § 163 of the Internal Revenue Code for purposes of 22
determining taxable income under the Internal Revenue Code. 23
[(8)] (7) “Related entity” means a person that, under the attribution rules 24
of § 318 of the Internal Revenue Code, is: 25
(i) a stockholder who is an individual or a member of the 26
stockholder’s family enumerated in § 318 of the Internal Revenue Code, if the stockholder 27
and the members of the stockholder’s family own directly, indirectly, beneficially, or 28
constructively, in the aggregate, at least 50% of the value of the taxpayer’s outstanding 29
stock; 30
(ii) a stockholder or a stockholder’s partnership, limited liability 31
company, estate, trust, or corporation, if the stockholder and the stockholder’s partnership, 32
limited liability company, estate, trust, or corporation own directly, indirectly, beneficially, 33 HOUSE BILL 337 7
or constructively, in the aggregate, at least 50% of the value of the taxpayer’s outstanding 1
stock; or 2
(iii) a corporation or a party related to the corporation in a manner 3
that would require an attribution of stock from the corporation to the party or from the 4
party to the corporation under the attribution rules of § 318 of the Internal Revenue Code, 5
if the taxpayer owns directly, indirectly, beneficially, or constructively, at least 50% of the 6
value of the corporation’s outstanding stock. 7
[(9)] (8) “Related member” means a person that, with respect to the 8
taxpayer during all or any portion of the taxable year, is: 9
(i) a related entity; 10
(ii) a component member, as defined in § 1563(b) of the Internal 11
Revenue Code; or 12
(iii) a person to or from whom there is attribution of stock ownership 13
in accordance with § 1563(e) of the Internal Revenue Code. 14
(b) (1) Except as otherwise provided in this section, in addition to the 15
modifications under §§ 10–305 and 10–306 of this subtitle, the amounts under paragraph 16
(2) of this subsection are added to the federal taxable income of a corporation to determine 17
Maryland modified income. 18
(2) The addition under this subsection includes any otherwise deductible 19
interest expense or intangible expense if the interest expense or intangible expense is 20
directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly 21
with one or more direct or indirect transactions with, one or more related members. 22
(c) The addition required under subsection (b) of this section does not apply to 23
any portion of the interest expense or intangible expense to the extent that the corporation 24
establishes BY CLEAR AND CONVINC ING EVIDENCE , as determined by the Comptroller, 25
that: 26
(1) the transaction giving rise to the payment of the interest expense or 27
intangible expense between the corporation and the related member did not have as a 28
principal purpose the avoidance of any portion of the tax due under this title; 29
(2) the interest expense or intangible expense was paid pursuant to 30
arm’s–length contracts at an arm’s–length rate of interest or price; and 31
(3) (i) during the same taxable year, the related member directly or 32
indirectly paid, accrued, or incurred the interest expense or intangible expense to a person 33
who is not a related member; OR 34
8 HOUSE BILL 337
(ii) 1. the related member was subject to a tax measured by its 1
net income or receipts in this State, another state or possession of the United States, or a 2
foreign nation that has entered into a comprehensive tax treaty with the United States 3
government; 4
2. a measure of the tax imposed by this State, another state 5
or possession of the United States, or a foreign nation that has entered into a 6
comprehensive tax treaty with the United States government included the interest expense 7
or intangible expense received by the related member from the corporation; 8
3. IF APPLICABLE, THE MEASURE OF ANY T AX IMPOSED 9
BY A FOREIGN NATION THAT HAS ENTERED INTO A C OMPREHENSIVE TAX TRE ATY 10
WITH THE UNITED STATES GOVERNMENT WAS EQUAL TO OR GREATER THAN THE 11
TAX IMPOSED BY THIS STATE; and 12
[3.] 4. the aggregate effective tax rate imposed on the amounts 13
received by the related member is equal to or greater than [4%; or 14
(iii) in the case of an interest expense, the corporation and the related 15
member are banks] THE TAX RATE SPECIFIED UNDER § 10–105(B) OF THIS TITLE 16
MINUS 3%, PROVIDED THAT A RELA TED MEMBER RECEIVING THE INTEREST 17
EXPENSE OR INTANGIBLE EXPENS E IS NOT CONSIDERED TO BE SUBJECT TO A T AX 18
MERELY BY VIRTUE OF THE RELAT ED MEMBER ’S INCLUSION IN A COM BINED OR 19
CONSOLIDATED RE PORT IN ONE OR MORE STATE S. 20
(d) (1) Subject to regulations adopted by the Comptroller, the addition 21
required under subsection (b) of this section does not apply if, in lieu of the [4%] effective 22
tax rate requirement under subsection [(c)(3)(ii)3] (C)(3)(II)4 of this section, the aggregate 23
effective tax rate imposed on the amounts received by the recipient is greater than or equal 24
to the aggregate effective tax rate that would have been imposed on the additional income 25
of the payor corporation if the interest expense or intangible expense had not been 26
deducted. 27
(2) For purposes of subsection (c)(3)(ii) of this section, the Comptroller may 28
provide by regulation for an alternative to the effective tax rate requirement of subsection 29
[(c)(3)(ii)3] (C)(3)(II)4 of this section if: 30
(i) the related member: 31
1. is subject in another state or in a foreign nation that has 32
entered into a comprehensive tax treaty with the United States government to a tax that 33
is measured by gross receipts or is measured by net capital or net worth; and 34
2. is not subject in that state or in that foreign nation to a tax 35
measured by net income or receipts; or 36
HOUSE BILL 337 9
(ii) under other circumstances demonstrating to the satisfaction of 1
the Comptroller that avoidance of any portion of the tax due under this title is not a 2
principal purpose of the transaction giving rise to the payment of the interest expense or 3
intangible expense between the corporation and the related member, the Comptroller 4
determines that it is impractical for a related member that is subject to tax in this State, 5
another state, or a foreign nation that has entered into a comprehensive tax treaty with the 6
United States government, where the measure of the tax includes the payment to satisfy 7
the requirements of subsection (c)(3)(ii) of this section. 8
(e) (1) (I) If the payor and the recipient are both included in a combined or 9
consolidated report filed in a jurisdiction: 10
[(1)] 1. for purposes of subsection (c)(3)(ii)2 of this section, the 11
measure of the tax imposed by that jurisdiction shall be deemed to include the interest 12
expense or intangible expense; and 13
[(2)] 2. EXCEPT AS PROVIDED I N SUBPARAGRAPH (II) OF THIS 14
PARAGRAPH , for purposes of determining the effective rate of tax imposed by the 15
jurisdiction, the applicable apportionment rate is the lesser of: 16
[(i)] A. the apportionment rate of the recipient corporation, 17
determined by using only that corporation’s factors in the numerators and denominators of 18
the apportionment formula; or 19
[(ii)] B. the apportionment rate of the combined or consolidated 20
group, determined by combining the recipient corporation’s factors with the factors of other 21
members of the group included in the combined or consolidated report. 22
(II) THE EFFECTIVE RATE OF TAX IMPOSED AS TO AN Y STATE, 23
POSSESSION OF THE UNITED STATES, OR FOREIGN NATION SHALL BE ZERO IF: 24
1. THE RELATED MEMBER ’S NET INCOME TAX LIA BILITY 25
IN THE JURISDICTION IS REPORTED ON A COMBINED OR CONSOLID ATED RETURN 26
THAT INCLUDES THE PAYOR AND THE RECIPIENT; AND 27
2. THE REPORTED TRANSAC TIONS BETWEEN THE PAYOR 28
AND THE RECIPIENT ARE ELIMINATED OR OF FSET. 29
(2) FOR PURPOSES OF DETER MINING THE EFFECTIVE RATE OF TAX 30
IMPOSED BY A JURISDI CTION, IF A RELATED MEMBER ’S NET INCOME IS ELIM INATED 31
OR OFFSET BY A CREDI T OR SIMILAR ADJUSTM ENT THAT IS DEPENDEN T ON THE 32
RELATED MEMBER EITHE R MAINTAINING OR MAN AGING INTANGIBLE PROPERTY OR 33
COLLECTING INTEREST INCOME IN THE JURISDICTION, THE MAXIMUM STATUTOR Y 34
RATE OF TAX IMPOSED BY THE JURISDICTION SHALL BE DECREASED T O REFLECT 35 10 HOUSE BILL 337
THE STATUTORY RATE O F TAX THAT APPLIES T O THE RELATED MEMBER AS 1
EFFECTIVELY REDUCED BY THE CREDIT OR SIMILAR AD JUSTMENT. 2
(f) (1) In addition to the modifications under §§ 10–305 and 10–306 of this 3
subtitle, subject to paragraph (2) of this subsection, to determine Maryland taxable income, 4
an amount is subtracted from the federal taxable income of a corporation equal to the 5
amount received as royalties, interest, or similar income from intangibles from a related 6
member to the extent the related member, with respect to the payment, is subject to the 7
addition modification under subsection (b) of this section or a similar addition modification 8
of another state or of a foreign nation that has entered into a comprehensive tax treaty with 9
the United States government for intangible expenses or interest expenses paid to related 10
members. 11
(2) The subtraction modification under this subsection is not allowed to the 12
extent that: 13
(i) the transaction giving rise to the payment of the interest expense 14
or intangible expense had as a principal purpose the avoidance of State income taxes; 15
(ii) the interest expense or intangible expense was not paid pursuant 16
to arm’s–length contracts at an arm’s–length rate of interest or price; or 17
(iii) the aggregate effective tax rate imposed on the amounts received 18
by the recipient exceeds the aggregate effective tax rate imposed on the income of the payor 19
corporation. 20
(g) This section may not be construed: 21
(1) to require a corporation to include in or add to its net income more than 22
once any amount of interest expense or intangible expense that the corporation pays, 23
accrues, or incurs to a related member; or 24
(2) to limit or negate any other authority provided to the Comptroller under 25
this article, including: 26
(i) the authority to make adjustments under § 10–109 or § 10–402(e) 27
of this title; or 28
(ii) the authority to enter into agreements and compromises 29
otherwise allowed by law. 30
(h) The Comptroller shall adopt any regulations that are necessary or appropriate 31
to implement this section. 32
10–307. 33
HOUSE BILL 337 11
(a) To the extent included in federal taxable income, the amounts under this 1
section are subtracted from the federal taxable income of a corporation to determine 2
Maryland modified income. 3
(d) (1) IN THIS SUBSECTION , “DIVIDEND” DOES NOT INCLUDE ANY 4
AMOUNT TREATED AS A DIVIDEND UNDER § 245 OR § 1248 OF THE INTERNAL 5
REVENUE CODE. 6
(2) The subtraction under subsection (a) of this section includes dividends 7
received from a corporation if: 8
[(1)] (I) the receiving corporation owns, directly or indirectly, 50% or 9
more of the paying corporation’s outstanding shares of capital stock; and 10
[(2)] (II) the paying corporation is organized under the laws of a foreign 11
government. 12
SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect July 13
1, 2023, and shall be applicable to all taxable years beginning after December 31, 2022. 14