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Business Income Tax Information

The Comptroller of Maryland is dedicated to helping businesses navigate and fulfill their tax and filing obligations. This section details the tax information for Corporate, Pass-through and Sole Proprietor Income Tax.

Corporation Income Tax

The corporation income tax applies to every Maryland corporation , even if it has no taxable income or the corporation is inactive.  Every other corporation that is subject to Maryland income tax law and has income or losses attributable to sources within Maryland must also file Form 500.

Effective January 1, 2008, the tax is imposed at an 8.25% rate on the Maryland taxable income, defined as Maryland modified income, which is the corporation federal taxable income adjusted by state modifications. Corporations engaged in Multi-state operations must allocate Maryland modified income using an apportionment formula, generally consisting of receipts, property and payroll factors.

Form 500A has been eliminated and corporations will now make the calculation of corporation modified income on Form 500. Any corporation with decoupling modifications, such as, Section 10-306.1 related party transactions, or foreign source dividends will now account for those on Form 500 as well.

Maryland corporations may also be eligible for business tax credits which may be claimed against the corporation income tax by electronically filing Form 500CR.

S corporations, partnerships and limited liability companies should not file a corporation income tax return. These businesses must file as pass-through entities using Form 510 Maryland Pass-Through Entity Income Tax Return.

Pass-Through Entity Income Tax

A pass-through entity is required to file Maryland Form 510, Pass-through Entity Income Tax Return, if the entity is formed or incorporated in Maryland, does business in Maryland, or has Maryland income (or losses). The following are pass-through entities:

  • Partnerships, as defined in § 761 of the Internal Revenue Code.
  • Limited Liability Companies (defined under Title 4A-101 of the Corporations and Associations Article of the Maryland Code Annotated) classified as partnerships, as defined in § 761 of the Internal Revenue Code, and not taxed as a corporation or disregarded as an entity.
  • S corporations, as defined in § 1361 AND 1362 of the Internal Revenue Code.
  • Business trusts, as defined in Maryland Corporation and Associations Article, Section 12-101.

A pass-through entity files Form 510 to report the pass-through entity's items of income, adjustments, gains, losses, and other required information. These items are passed through the entity to be taxed to the partners, shareholders, members or beneficiaries (referred collectively hereafter as "member"). Each member is then required to file the applicable Maryland income tax return and pay any tax due on the member's distributable or pro-rata share of the pass-through entity's items for the tax year. Payment of the Maryland income tax is not required with the filing of Form 510 unless the pass-through entity is subject to the nonresident member tax.

Nonresident members

If a pass-through entity has a nonresident member and any nonresident taxable income, then the pass-through entity is subject to the Maryland income tax. The pass-through entity is taxed on the nonresident taxable income, which is the sum of the nonresident members' distributive or pro-rata shares of the pass-through entity's income allocable to Maryland.

A "nonresident member" includes a nonresident individual member (defined as a person or fiduciary) and a nonresident entity member. A nonresident entity member is a corporation or pass-through entity that is not qualified or registered with the Maryland Department of Assessments and Taxation to do business in Maryland or not formed under Maryland law.

Effective tax year 2011, Form 510C is used by PTEs to file a composite income tax return on behalf of nonresident individual members. Please do not file a composite return using Form 505.

Tax Rates for Pass-Through Entities

For tax year 2019, Pass-through Entities must pay a tax consisting of 5.75%, plus a special nonresident tax of 2.25% (for a total of 8.0%), of the nonresident individual and nonresident fiduciary members' distributive or pro rata shares of income allocable to Maryland.

Pass-Through Entities are also required to pay a tax at the rate of 8.25% of income allocable to Maryland on behalf of all members' who are nonresident entities.

Tax Information for Sole Proprietorships

According to the IRS, a sole proprietorship is the most common form of business organization. Easy to form, it is any unincorporated business owned and controlled entirely by one individual. In general, for Maryland and federal purposes the owner is personally responsible for all financial obligations and debts of the business.

Sole proprietors can operate any kind of business as long as it is a business and not an investment or hobby. It can be full or part-time. Every sole proprietor is required to keep business records to comply with federal and Maryland state tax law.

Tax information for sole proprietors may be found under Sole Proprietorships or in the Tax Information section under Individuals Income Tax section. For federal information on sole proprietors see IRS web site.

Tax Regulations

The Federal Regulations link below will give you information on decoupling from federal income tax laws.

The State Regulations link below will take you to information on tax legislation passed by the Maryland General Assembly (Legislative Summaries), the Code of Maryland Regulations (COMAR), and Legislative Updates for Alcohol, Tobacco and Motor Fuel.

There are also links to Tax Alerts that pertain to business taxes.