Maryland — Corporate Income / Franchise Tax

Maryland imposes a flat corporate income tax rate of 8.25% on a corporation's Maryland taxable income. This rate applies to C corporations doing business in Maryland or organized under Maryland law. The tax is computed by applying the 8.25% rate to Maryland taxable income, which is generally federal taxable income with Maryland-specific modifications, apportioned to Maryland for multistate businesses.

Maryland taxable income for corporations operating solely within Maryland equals their Maryland modified income. For corporations engaged in multistate operations, Maryland uses a single-sales-factor apportionment formula (fully phased in as of tax year 2022) to determine the portion of income attributable to Maryland, except for certain worldwide headquartered companies that may use different apportionment methods.

Source: Md. Code Ann., Tax-Gen. § 10-105(b)

Maryland imposes a corporate income tax on the Maryland taxable income of each corporation, subject to certain exemptions. The tax applies to C corporations doing business in Maryland or organized under Maryland law. Exemptions include financial institutions subject to the financial institution franchise tax, insurance companies subject to taxation under Title 6 of the Insurance Article, partnerships, S corporations (except for pass-through entity-level taxes under § 10-102.1), and limited liability companies treated as partnerships for federal tax purposes.

Source: Md. Code Ann., Tax-Gen. § 10-102; Md. Code Ann., Tax-Gen. § 10-104

Maryland corporate income tax returns are due by the 15th day of the fourth month following the close of the corporation's tax year. For calendar-year C corporations, this means the return is due April 15. Corporations allowed a later federal due date under the Internal Revenue Code receive the same due date for Maryland purposes.

Source: COMAR 03.04.03.04

Maryland imposes corporate income tax on corporations organized under Maryland law and on foreign corporations doing business in Maryland. A foreign corporation has nexus if its Maryland activities exceed the protections of P.L. 86-272, which shields only the solicitation of orders for tangible personal property approved and filled outside Maryland. Activities that create nexus include maintaining a business location in Maryland, owning or using property in the state, having employees accept orders in Maryland, installing or assembling products, maintaining inventory in public warehouses, providing technical assistance or training, and operating mobile stores.

Source: Md. Code Ann., Tax-Gen. § 10-102; Administrative Release No. 2

Maryland grants an automatic extension of up to 7 months to file the corporate income tax return (Form 500) if a corporation files Form 500E (Application for Extension to File Corporation Income Tax Return) by the original return due date. For calendar-year corporations, this means filing the extension request by April 15 to obtain an extension until November 15.

Separate state extension required

Maryland does not conform to the automatic federal extension. A corporation that files federal Form 7004 with the IRS must still file a separate Maryland Form 500E with the Comptroller of Maryland to receive a Maryland extension. The federal extension does not extend the Maryland filing deadline on its own.

Extension deadline

Form 500E must be filed by the same date the corporate income tax return would otherwise be due — the 15th day of the fourth month following the close of the corporation's tax year. A corporation that files Form 500E by that date receives an automatic 7-month extension; no approval from the Comptroller is required.

First-time filers

A corporation filing its first Maryland corporate income tax return must submit Form 500E even if it has zero tax due, if the corporation needs an extension. Corporations that have previously filed Form 500 and have zero Maryland tax liability for the current year may request an extension online through the Maryland Comptroller's Internet Extension Request Filing System rather than submitting a paper or electronic Form 500E.

Extension of time to file, not to pay

The extension applies only to the time for filing the return. It does not extend the time for payment of tax. Any tax due must be paid by the original return due date to avoid interest and penalties. A corporation expecting to owe tax should compute the estimated tax liability on Form 500E and remit payment with the extension request. Payments of $10,000 or more must be made by electronic funds transfer.

Corporations in consolidated federal groups

Affiliated corporations included in a consolidated federal return must file separate Maryland extension requests for each member corporation. Maryland does not permit consolidated returns under state law, so each affiliated corporation subject to Maryland tax files its own Form 500 and, if needed, its own Form 500E.

Source: COMAR 03.04.03.04; Maryland Form 500E; Maryland Online Extension Filing

Maryland uses a single-sales-factor apportionment formula for corporations engaged in multistate unitary business operations. This formula determines the portion of Maryland modified income attributable to Maryland by multiplying total Maryland modified income by the sales factor (Maryland sales ÷ total sales). The single-sales-factor method fully replaced the prior three-factor formula beginning with tax years after December 31, 2021.

Phase-in schedule

Maryland phased in the single-sales-factor formula over five years beginning in 2018. The phase-in schedule was:

• 2018 tax year: (Property factor + Payroll factor + 3 × Sales factor) ÷ 5
• 2019 tax year: (Property factor + Payroll factor + 4 × Sales factor) ÷ 6
• 2020 tax year: (Property factor + Payroll factor + 5 × Sales factor) ÷ 7
• 2021 tax year: (Property factor + Payroll factor + 6 × Sales factor) ÷ 8
• 2022 tax year and after: Maryland modified income × 100% of sales factor

Prior to 2018, Maryland required non-manufacturing corporations to use a three-factor formula with property, payroll, and double-weighted sales factors.

Manufacturing corporations

Manufacturing corporations — defined as corporations primarily engaged in activities in NAICS sectors 11, 31, 32, or 33 — have used the single-sales-factor formula since before the general phase-in. A corporation is "primarily engaged" in manufacturing if more than 50% of its sales derive from these NAICS sectors and line 1c (sales) of its federal return exceeds 50% of line 11 (total income). Manufacturing corporations must certify that their NAICS code is consistent with codes reported to other government agencies. Refiners as defined in Md. Code Ann., Bus. Reg. § 10-101 are excluded from the manufacturing-corporation definition.

Worldwide headquartered company election

A "worldwide headquartered company" may elect annually to continue using the prior three-factor formula with double-weighted sales: (Property factor + Payroll factor + 2 × Sales factor) ÷ 4. To qualify, a corporation must be part of a group including a parent that: (1) filed a Form 10-Q with the SEC for the quarterly period ending June 30, 2017; (2) has its principal executive office in Maryland; and (3) employs at all times between July 1, 2017, and June 30, 2020, at least 500 full-time employees at that principal executive office. The statute does not define "principal executive office."

Sales factor sourcing — tangible personal property

Maryland follows destination-based sourcing for tangible personal property. Receipts are in the sales factor numerator if the property is delivered or shipped to a purchaser within Maryland, regardless of f.o.b. point. This includes property in transit to a Maryland destination.

Sales factor sourcing — services

Maryland applies market-based sourcing for services. Receipts from services are in the numerator if derived from customers within Maryland. For individuals, the customer is within Maryland if domiciled in Maryland. For business enterprises, the customer is within Maryland if the business is domiciled in Maryland. When a service is performed both within and outside Maryland, the Comptroller looks to where the customer receives the benefit of the service. For services related to real property (construction, design, improvements), receipts are sourced to the situs of the property. If no particular place of business can be identified as the principal impetus for a contract, receipts are in the numerator only if the customer's headquarters or principal place of business management is located in Maryland.

Intangible income treatment

For corporations subject to the general single-sales-factor formula, gross receipts from intangible items such as dividends, interest, royalties, and capital gains (including capital gains from sales of tangible personal property) are excluded from both the numerator and denominator of the sales factor. For worldwide headquartered companies that elect the three-factor formula, gross income from intangible investments must be included in the numerator calculation based on the average of the property and payroll factors.

Source: Md. Code Ann., Tax-Gen. § 10-402; COMAR 03.04.03.08; COMAR 03.04.03.10

Maryland requires a corporation to make quarterly estimated income tax payments if the corporation's estimated tax for the complete tax period will exceed $1,000. Corporations file Form 500D (Maryland Declaration of Estimated Corporation Income Tax) with each quarterly remittance. Payments of $10,000 or more must be remitted electronically by immediately available funds.

Quarterly due dates

Estimated tax declarations and payments are due by the 15th day of the 4th, 6th, 9th, and 12th month following the beginning of the tax year or period. For a calendar-year corporation, the four installment dates are April 15, June 15, September 15, and December 15.

Amount required per installment

At least 25% of the total estimated tax must be remitted by each of the four installment due dates. The corporation must pay at least 25% of the estimated income tax shown on the declaration or amended declaration for the taxable year with the declaration or amended declaration that covers that year, and with each quarterly return for that year.

Safe-harbor thresholds to avoid underpayment interest

The total estimated tax payments for the year must be at least:

• 90% of the tax developed for the current taxable year, or
• 110% of the tax developed for the prior tax year.

If the corporation's estimated payments meet either safe harbor, the Comptroller may not assess interest on unpaid tax under Md. Code Ann., Tax-Gen. § 13-602. If a corporation fails to pay an installment when due or estimates a tax that is both less than 90% of the current-year tax required to be shown on the return and less than 110% of the tax paid for the prior taxable year (reduced by any credit allowed under § 10-703), the Comptroller shall assess interest on unpaid tax from the due date to the date on which the tax is paid.

Assessment of interest and penalty for underpayment of estimated tax is based on the tax for the current taxable year.

Short tax periods

For a short tax period, the total estimated tax for the taxable period shall be paid equally over the number of installment due dates occurring during the short tax year. However, estimated tax is not required to be remitted for a short period of less than four months.

Consolidated federal filers

Affiliated corporations that are included in a consolidated federal return must file separate Maryland estimated declarations for each member corporation. Consolidated returns are not allowed under Maryland law.

Final reconciliation

Any unpaid income tax for the year shown on the corporation's annual income tax return (Form 500) must be paid with that return, which is due by the 15th day of the fourth month following the end of the tax year.

Source: COMAR 03.04.03.06; Md. Code Ann., Tax-Gen. § 10-902; Md. Code Ann., Tax-Gen. § 13-602

Maryland does not impose a minimum corporate income tax or filing fee on corporations with no Maryland taxable income or on corporations below any income threshold. The corporate income tax is computed solely as 8.25% of Maryland taxable income. If a corporation's Maryland taxable income is zero or negative, the income tax liability is zero.

Filing requirement regardless of income

Maryland law requires every Maryland corporation to file a corporate income tax return (Form 500) even if the corporation has no taxable income or is inactive. Foreign corporations subject to Maryland income tax that have income or losses attributable to Maryland sources must also file Form 500 regardless of whether they owe tax. The filing requirement exists independently of whether any tax is due.

Distinction from annual report fee

Corporations doing business in Maryland must also file an annual report (Form 1) with the Maryland State Department of Assessments and Taxation (SDAT), due by April 15 each year. The annual report filing fee for stock corporations is $300. This $300 fee is a business registration and charter maintenance fee, not an income tax. It is paid to SDAT, not to the Comptroller of Maryland. The annual report and personal property tax return are due under Maryland Tax-Property Code § 11-101, which is a separate filing from the corporate income tax return (Form 500) filed under the Tax-General article.

Because the corporate income tax (administered by the Comptroller) and the annual report fee (administered by SDAT) are separate obligations under separate statutes, a corporation with zero Maryland taxable income owes zero corporate income tax but still owes the $300 annual report fee to SDAT if it is a stock corporation organized or registered in Maryland.

Source: Md. Code Ann., Tax-Gen. § 10-105(b); Business Income Tax Information, Maryland Comptroller; Md. Code Ann., Tax-Property § 11-101

Maryland does not permit affiliated corporations to file combined or consolidated corporate income tax returns. Each corporation that files in a consolidated federal group must file a separate Maryland corporate income tax return and report its Maryland taxable income computed on a separate-company basis, without regard to the federal consolidation.

Separate filing mandate

COMAR 03.04.03.03(B)(1) provides: "Affiliated corporations which are included in a consolidated federal return shall file separate Maryland returns, and each separate corporation shall report its taxable income without regard to any consolidation for federal income tax purposes." This rule applies regardless of the degree of common ownership, the existence of a unitary business relationship, or whether the affiliated group files a consolidated federal return.

Each Maryland corporation reports its own Maryland taxable income, starting with its separate federal taxable income (or, in the case of a consolidated federal filer, its pro forma separate federal taxable income as if it had filed a separate federal return). That income is then adjusted by Maryland-specific additions and subtractions, and — for corporations operating in multiple states — apportioned to Maryland using Maryland's single-sales-factor formula.

Separate computation of net operating losses

When an affiliated group files a consolidated federal return, Maryland requires each member corporation to calculate its own net operating loss deduction on a separate-company basis. COMAR 03.04.03.07(A)(3) states: "When an affiliated group of corporations files a consolidated return for federal purposes, each separate member corporation shall calculate any net operating loss deduction based on its separate federal taxable income and loss and as if the member corporation was not involved in a consolidated filing and filed a separate federal return." A corporation may not use another member's losses, nor can it carry forward a loss generated during a year in which the corporation had no Maryland nexus.

Related-party add-back rule — intercompany adjustments

Because Maryland requires separate filing but does not permit combined reporting, the state addresses intercompany income-shifting through a related-party add-back statute. Under Md. Code Ann., Tax-Gen. § 10-306.1(b), a corporation must add back to its federal taxable income (when computing Maryland modified income) any otherwise deductible interest expense or intangible expense (including royalties, licensing fees, and similar payments for the use of intangible property) that is paid, accrued, or incurred to a related member. A "related member" is defined under § 10-306.1(a)(9) to include component members of a controlled group (as defined in IRC § 1563) and persons with attribution of stock ownership under IRC §§ 318 or 1563(e), generally requiring at least 50% common ownership.

Exceptions to the add-back

The add-back does not apply if the taxpayer can demonstrate one or more of the following exceptions under § 10-306.1(c):

1. The related member receiving the payment includes the income in its tax base in Maryland or another U.S. state and pays tax on it at an aggregate effective tax rate that is at least equal to the Maryland rate imposed on the payor (taking apportionment into account);
2. The transaction giving rise to the payment was undertaken for a valid business purpose other than the avoidance of Maryland income tax;
3. The payment was made pursuant to an arm's-length contract at an arm's-length rate or price; or
4. The payor and recipient are both included in a combined or consolidated return filed in another jurisdiction, and the tax base of that jurisdiction includes the payment.

The burden of proof rests on the taxpayer to demonstrate that an exception applies. Failure to substantiate an exception results in the add-back being required.

Subtraction modification for the recipient

Maryland provides a corresponding subtraction modification under § 10-306.1(f) for a corporation that receives royalty, interest, or similar income from a related member to the extent the related member was required to add back the payment under Maryland's add-back statute (or a similar statute in another state or treaty jurisdiction). This prevents double taxation when both the payor and recipient file in Maryland. However, the subtraction is disallowed if the transaction had a principal tax-avoidance purpose, the payment was not at arm's length, or the effective tax rate on the recipient exceeds the rate on the payor.

Federal adjustment reconciliation

Corporations in a consolidated federal group that receive an IRS audit adjustment must submit a copy of the final IRS adjustment report to the Comptroller within 90 days. COMAR 03.04.03.06(B)(2) requires that the submission "include a schedule reconciling the separate adjustments for each member corporation." Each Maryland-filing member must then file an amended Maryland return reflecting its separate-company share of the federal adjustment.

No combined reporting — current status

As of June 2026, Maryland continues to mandate separate filing. Mandatory combined reporting bills have been introduced repeatedly in the Maryland General Assembly (e.g., H.B. 172 in 2021, S.B. 576 in 2023, and S.B. 859 in 2025) but have not been enacted. The 2025 budget bill (S.B. 859) would have required affiliated corporations engaged in a unitary business to file a combined income tax return for tax year 2029 and beyond, with regulations to be adopted by the Comptroller consistent with Multistate Tax Commission principles, but the bill did not pass. Unless and until the General Assembly enacts combined reporting, each affiliated corporation doing business in Maryland must continue to file a separate Maryland return.

Source: COMAR 03.04.03.03 Source: Md. Code Ann., Tax-Gen. § 10-306.1 Source: COMAR 03.04.03.07 Source: COMAR 03.04.03.06

Maryland corporate taxable income begins with a corporation's federal taxable income and then applies state-specific addition modifications and subtraction modifications to arrive at Maryland modified income. Maryland modified income is federal taxable income after statutory addition and subtraction adjustments. For a multistate corporation, Maryland modified income is then apportioned to Maryland using the single-sales-factor formula.

Maryland's modifications are codified primarily in Md. Code Ann., Tax-Gen. §§ 10-305 (additions), 10-306 and 10-306.1 (additional state-specific additions), and 10-307 (subtractions).

Addition modifications under § 10-305

Section 10-305(a) provides: "To the extent excluded from federal taxable income, the amounts under this section are added to the federal taxable income of a corporation to determine Maryland modified income."

Section 10-305(d) requires corporations to add back the same items required for individuals under § 10-204, including:

• Dividends and interest from another state or local obligation (§ 10-204(b)) — interest and dividends from obligations of other states or their political subdivisions, to the extent excluded from federal gross income under IRC § 103, are added back for Maryland purposes.

• Federal tax-exempt income (§ 10-204(c)(2)) — certain items of income exempt from federal tax but taxable by Maryland.

• Oil percentage depletion allowance (§ 10-204(e)) — depletion deductions in excess of cost depletion.

• Deduction for qualified production activities income (§ 10-204(i)) — the federal deduction under former IRC § 199.

• Deduction for security clearance and SCIF construction costs (§ 10-204(j)).

• Deduction for donations to qualified permanent endowment funds (§ 10-204(l)).

Related-party add-back under § 10-306.1

Section 10-306.1(b)(1) requires an addition modification for "any otherwise deductible interest expense or intangible expense if the interest expense or intangible expense is directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related members."

"Related member" is defined in § 10-306.1(a)(9) to mean a person that is: (i) a related entity; (ii) a component member as defined in IRC § 1563(b); or (iii) a person to or from whom there is attribution of stock ownership in accordance with IRC § 1563(e).

Exceptions to the add-back are enumerated in § 10-306.1(c). The taxpayer bears the burden of proving an exception applies. Exceptions include:

1. The related member receiving the payment includes the amount in its tax base and pays tax on it at an aggregate effective tax rate at least equal to the Maryland rate imposed on the payor.
2. The transaction had a valid business purpose other than tax avoidance.
3. The payment was made pursuant to an arm's-length contract at an arm's-length rate or price.
4. The payor and recipient are both included in a combined or consolidated return filed in another jurisdiction that includes the payment in its tax base.

Section 10-306.1(f)(1) provides a corresponding subtraction modification for a corporation that receives royalty, interest, or similar income from a related member "to the extent the related member, with respect to the payment, is subject to the addition modification under subsection (b) of this section or a similar addition modification of another state or of a foreign nation that has entered into a comprehensive tax treaty with the United States." This prevents double taxation when both the payor and recipient file in Maryland or when the payor is subject to a similar add-back in another state.

Subtraction modifications under § 10-307

Section 10-307(a) provides: "To the extent included in federal taxable income, the amounts under this section are subtracted from the federal taxable income of a corporation to determine Maryland modified income."

Key subtractions include:

• IRC § 78 gross-up (§ 10-307(b)) — "the amount included in the income of a domestic corporation claiming a foreign tax credit as dividends under § 78 of the Internal Revenue Code."

• Dividends from certain foreign subsidiaries (§ 10-307(d)) — dividends received from a corporation if: (1) the receiving corporation owns, directly or indirectly, 50% or more of the paying corporation's outstanding shares of capital stock; and (2) the paying corporation is organized under the laws of a foreign country.

• U.S. obligations interest (§ 10-307(f)) — "interest attributable to an obligation of the United States or an instrumentality of the United States."

• State or local income tax refunds (§ 10-307(g)(3)) — the amounts allowed to be subtracted for an individual under § 10-207(m) (State or local income tax refunds).

Decoupling modifications — bonus depreciation, Section 163(j), and R&E expensing

Maryland has decoupled from certain federal depreciation and deduction provisions, requiring corporations to report addition or subtraction modifications on Form 500DM (Decoupling Modification Schedule).

Bonus depreciation (IRC § 168(k)): Maryland permanently decoupled from federal bonus depreciation in 2002. The Maryland Form 500 Instructions for Tax Year 2025 state: "to reduce federal taxable income, an addition modification is required for the difference between federal depreciation and the Maryland allowable amount." The instructions further note that "Maryland has decoupled from certain provisions of the CARES Act," referencing Tax Alert 7-24 and Administrative Release 18. Corporations that claim federal bonus depreciation must add back the excess federal amount and deduct only the Maryland-allowed depreciation. Exception: the Budget Reconciliation and Financing Act of 2019 exempted manufacturing entities from the bonus depreciation add-back for property placed in service after 2018.

Business interest limitation (IRC § 163(j)): The Maryland Tax Alert on the One Big Beautiful Bill Act (OBBBA, P.L. 119-21), dated January 6, 2026, explains that OBBBA amended IRC § 163(j) to permit businesses to exclude depreciation and amortization when calculating adjusted taxable income (ATI), restoring the EBITDA-based calculation. The Tax Alert provides a worked example: a corporation with $2 million of income and $300,000 of depreciation would have federal ATI of $2.3 million under OBBBA (excluding depreciation), allowing a business interest deduction of $690,000 (30% of $2.3 million). However, "On its Maryland return, Company must recalculate ATI, this time deducting the depreciation expense," resulting in Maryland ATI of $2 million and a Maryland-allowed deduction of $600,000. The corporation reports $690,000 in Column 1 of Form 500DM (federal amount) and $600,000 in Column 2 (Maryland amount), producing a net addition modification of $90,000.

The Tax Alert also states: "Maryland has automatically decoupled from IRC § 174A, Note (f)" and that this decoupling applies "for tax year 2025 or earlier." The alert further notes: "The State will decouple from the relevant amendment for tax year 2025 or earlier but conform to the IRC amendment for all tax years beginning with tax year 2026 in the absence of legislative action."

Domestic research and experimental expenditures (IRC § 174 / § 174A): The Tax Alert explains that OBBBA permits immediate expensing of domestic R&E expenditures under new IRC § 174A. For tax years 2025 and earlier, Maryland has automatically decoupled. Corporations must "follow the five-year depreciation schedule on the Maryland return" and report a decoupling subtraction modification on Form 500DM for the Maryland-allowed amortization amount each year.

GILTI and state income taxes

GILTI (Global Intangible Low-Taxed Income): Maryland does not provide a separate statutory exclusion or add-back for GILTI inclusions under IRC § 951A. GILTI is included in Maryland modified income to the same extent it is included in federal taxable income after application of the federal IRC § 250 deduction. However, the § 78 gross-up attributable to deemed-paid foreign taxes on GILTI is subtracted under § 10-307(b).

State income taxes paid: State income taxes are not deductible for federal corporate income tax purposes under IRC § 164(a). Because they do not reduce federal taxable income, no Maryland add-back is required.

Net operating losses: The Maryland Form 500 Instructions for Tax Year 2025 state: "The NOL for Maryland purposes is the federal net operating loss. No modification of the federal NOL is allowed under Maryland income tax law except in the case of a foreign source dividend subtraction." A corporation in a consolidated federal group must use its separate federal NOL.

Reporting

Corporations report addition and subtraction modifications on the face of Form 500. Decoupling modifications for depreciation, business interest under § 163(j), and R&E expenditures are reported on Form 500DM, which requires pro forma federal calculations showing the federal amount, the Maryland-allowed amount, and the net addition or subtraction.

Source: Md. Code Ann., Tax-Gen. § 10-305 Source: Md. Code Ann., Tax-Gen. § 10-306.1 Source: Md. Code Ann., Tax-Gen. § 10-307 Source: Maryland Tax Alert — Maryland Impacts of the One Big Beautiful Bill Act (PL 119-21) Source: Maryland Form 500 Instructions, Tax Year 2025