EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
Underlining indicates amendments to bill.
Strike out indicates matter stricken from the bill by amendment or deleted from the law by
amendment.
*sb0968*
SENATE BILL 968
Q3 3lr2434
By: Senators King and Elfreth
Introduced and read first time: February 28, 2023
Assigned to: Rules
Re–referred to: Budget and Taxation, March 3, 2023
Committee Report: Favorable with amendments
Senate action: Adopted
Read second time: March 13, 2023
CHAPTER ______
AN ACT concerning 1
Income Tax – Captive Real Estate Investment Trusts – Alterations 2
FOR the purpose of altering the definition of “captive REIT” for purposes of a certain 3
addition modification under the Maryland income tax in the amount of the federal 4
dividends paid deduction for captive real estate investment trusts to exclude, under 5
certain circumstances, corporations, trusts, or associations owned or controlled by 6
certain qualified foreign entities and certain trusts owned or controlled by a listed 7
Australian property trust; and generally relating to an addition modification under 8
the Maryland income tax for captive real estate investment trusts. 9
BY repealing and reenacting, with amendments, 10
Article – Tax – General 11
Section 10–306.2 12
Annotated Code of Maryland 13
(2022 Replacement Volume) 14
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 15
That the Laws of Maryland read as follows: 16
Article – Tax – General 17
10–306.2. 18
(a) (1) In this section[:] THE FOLLOWING WORDS HAVE THE MEANINGS 19 2 SENATE BILL 968
INDICATED. 1
[(1)] (2) (I) [“captive] “CAPTIVE REIT” means a corporation, trust, or 2
association: 3
[(i)] 1. that is considered a real estate investment trust for the 4
taxable year under § 856 of the Internal Revenue Code; 5
[(ii)] 2. that is not regularly traded on an established securities 6
market; and 7
[(iii)] 3. OF WHICH more than 50% of the voting power or value of 8
the beneficial interests or shares [of which], at any time during the last half of the taxable 9
year, is owned or controlled, directly or indirectly, by a single entity that is subject to the 10
provisions of Subchapter C of Chapter 1 of the Internal Revenue Code[; and]. 11
[(2)] (II) [“captive] “CAPTIVE REIT” does not include: 12
[(i)] 1. a corporation, trust, or association [more than 50% of the 13
voting power or value of the beneficial interests or shares] of which, at any time during 14
which the corporation, trust, or association satisfies [item (1)(iii) of this subsection] 15
SUBPARAGRAPH (I)3 OF THIS PARAGRAPH , MORE THAN 50% OF THE VOTING POWER 16
OR VALUE OF THE BENE FICIAL INTERESTS OR SHARES OF THE CORPOR ATION, 17
TRUST, OR ASSOCIATION is owned or controlled, directly or indirectly, by: 18
[1.] A. a real estate investment trust other than a real 19
estate investment trust described in [item (1) of this subsection] SUBPARAGRAPH (I) OF 20
THIS PARAGRAPH ; 21
[2.] B. a person exempt from taxation under § 501 of the 22
Internal Revenue Code; [or] 23
[3.] C. a listed Australian property trust, OR AN ENTITY 24
ORGANIZED AS A TRUST IN WHICH A LISTED AUSTRALIAN PROPERTY T RUST OWNS 25
OR CONTROLS , DIRECTLY OR INDIRECT LY, 75% OR MORE OF THE VOTIN G POWER OR 26
VALUE OF THE BENEFICIAL INTERESTS OR SHARES OF THE TRU ST; or 27
D. A QUALIFIED FOREIGN ENTITY; OR 28
[(ii)] 2. subject to regulations that the Comptroller adopts, a real 29
estate investment trust that is intended to become regularly traded on an established 30
securities market and that satisfies the requirements of § 856(a)(5) and (6) of the Internal 31
Revenue Code by reason of § 856(h)(2) of the Internal Revenue Code. 32
SENATE BILL 968 3
(3) “QUALIFIED FOREIGN ENT ITY” MEANS A CORPORATION , TRUST, 1
ASSOCIATION, OR PARTNERSHIP THAT IS ORGANIZED UNDER THE LAWS OF A 2
FOREIGN GOVERNMENT A ND: 3
(I) AT LEAST 75% OF THE TOTAL ASSET V ALUE OF THE ENTITY 4
AT THE CLOSE OF THE ENTITY’S TAXABLE YEAR IS REPR ESENTED BY REAL ESTA TE 5
ASSETS, AS DEFINED IN § 856 OF THE INTERNAL REVENUE CODE, CASH AND CASH 6
EQUIVALENTS , AND UNITED STATES GOVERNMENT SEC URITIES; 7
(II) 1. IS NOT SUBJECT TO TA X ON AMOUNTS DISTRIB UTED 8
TO THE ENTITY’S BENEFICIAL OWNERS ; OR 9
2. IS EXEMPT FROM ENTIT Y–LEVEL TAXATION ; 10
(III) ON AN ANNUAL BASIS , DISTRIBUTES AT LEAST 85% OF THE 11
TAXABLE INCOME OF TH E ENTITY, AS COMPUTED IN THE J URISDICTION IN WHICH 12
THE ENTITY IS ORGANI ZED, TO THE HOLDERS OF TH E SHARES OR CERTIFIC ATES OF 13
THE BENEFICIAL INTER ESTS OF THE ENTITY ; 14
(IV) 1. OF WHICH NOT MORE TH AN 10% OF THE VOTING 15
POWER OR VALUE OF THE BENEFICIAL INTER ESTS OR SHARES OF TH E ENTITY IS 16
OWNED OR CONTROLLED DIRECTLY, INDIRECTLY, OR CONSTRUCTIVELY BY A 17
SINGLE ENTITY OR IND IVIDUAL; OR 18
2. THE BENEFICIAL INTER ESTS OR SHARES OF TH E 19
ENTITY ARE REGULARLY TRADED ON AN ESTABLI SHED SECURITIES MARKET; AND 20
(V) THE ENTITY IS ORGANI ZED IN A FOREIGN COU NTRY THAT 21
HAS A TAX TREATY WIT H THE UNITED STATES GOVERNMENT . 22
(b) In addition to the modifications under §§ 10–305 through 10–306.1 of this 23
subtitle, an amount equal to the amount of the dividends paid deduction allowed under the 24
Internal Revenue Code for the taxable year is added to federal taxable income to determine 25
the Maryland modified income of a captive REIT. 26
(c) For purposes of this section, the constructive ownership rules prescribed 27
under § 318(a) of the Internal Revenue Code, as modified by § 856(d)(5) of the Internal 28
Revenue Code, shall apply in determining the ownership of stock, assets, or net profits of 29
any person. 30
SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take e ffect July 31
1, 2023, and shall be applicable to all taxable years beginning after December 31, 2022. 32