Instructions For Form 500 - Maryland Corporation Income Tax Return

INSTRUCTIONS FOR

Gross income from intangible items such as

ator if some part of the service is performed

dividends, interest, royalties and capital gains

within Maryland and the base of operations or

SCHEDULE A –

from the sale of intangible property are included

place from which the service is controlled is in

COMPUTATION OF

in the numerator based upon the average of the

Maryland. If the base of operations or place

property and payroll factors.

from which the service is controlled is not in any

APPORTIONMENT FACTOR

state where the service is performed but the

Gross receipts from the rental, leasing or

– 2011

individual’s residence is in Maryland, the

licensing of real or tangible personal

compensation is also included in the numerator.

property are included in the numerator if the

Multistate corporations are those that are

property is located in Maryland. If tangible

operating in more than one state and beyond

OTHER APPORTIONMENT FORMULAS

personal property is located in this State for a

the protection of U.S.C.A. Title 15, Section 381

NOTE: Double-weighted receipts factor

portion of the tax year, only the income received

of the Interstate Commerce Tax Act (P.L.

provisions are not applicable for corporations

for that portion is included in the numerator.

86-272). Multi state corporations operating in

subject to the following apportionment formulas:

Maryland as a unitary business must allocate

Capital gains from the sale of real and tan-

Corporations engaged primarily in leasing

income using an apportionment formula.

gible personal property are included in the

or rental operations must use an equally

numerator if the property is located in Maryland.

Unistate corporations are those that are

weighted two-factor formula of receipts and

Ordinary net gain or loss derived from the sale

operating in only one state, or are operating in

prop erty. The receipts and property factors are

of depreciable assets is excluded from the

more than one state but the extent of the activity

calculated in accordance with the provisions for

factor.

in the other states is within the protection of P.L.

those factors of the three-factor formula, except

86-272. Unistate corporations subject to the

Other income items are included in

that receipts from intangible items are excluded.

Mary land income tax law may not apportion

accordance with the provisions previously stated

Corporations engaged primarily in certain

income.

depending on the nature and type of each item.

types of transportation operations must use a

Allocation means the assignment of income

PROPERTY FACTOR

The property factor

one-factor formula as follows:

to a particular state. Apportionment means the

includes owned as well as rented tangible

• T rucking operations (motor freight carriers)

allocation of income among states by the

personal property used in the trade or business

must use total road mileage traveled in

use of a formula containing apportionment

during the tax year. Such properties are

Maryland divided by total road mileage traveled

factors.

inventory, machinery and equipment, buildings

everywhere.

and land, and other tangible assets. Property is

All factors of the apportionment formula are

included in the numerator if it has a situs within

• R ailroad operations must use total track

developed as fractions, the numerator of which

Maryland.

mileage traveled in Maryland divided by total

is the total of Maryland items and the denomi-

nator is the total of items everywhere during the

track mileage traveled everywhere.

Property owned by the corporation is valued

tax year. Each factor is calculated to six decimal

at its original cost at the average of the tax year

• S hipping operations must use total voyage

places and the number of factors used is

beginning and ending amounts. If there are

days in Maryland divided by total voyage days

averaged to arrive at the final apportionment

material changes during the tax year and the

every where. Voyage days are the number of

factor. The items of both numerator and

yearly average is not a fair representation, the

days that ships spend in ports and on

denominator should reconcile to the items as

average must be calculated on a monthly or

waterways.

categorized and reported on the federal income

daily basis.

Banks and similar institutions are subject

tax return.

Property in transit is considered to be at its

to special apportionment rules. To review these

If a return is filed by a multistate corporation

destination for purposes of the factor. Property

rules, see Maryland Regulation 03.04.08.

which reflects a loss and there is no income to

under construction during the tax year is

Airline operations should see Administrative

be apportioned, an apportionment factor must

excluded from the factor until actually placed in

Release 22 for instructions.

be calculated for the filing to be complete.

service.

Manufacturing corporations are subject to

THREE-FACTOR FORMULA

Property leased or rented by the corporation

a special single factor formula based on receipts.

is included in the factor at a capitalized value.

Multistate corporations are generally required

The rules for calculating the single factor can be

To arrive at the capitalized value, expenses are

to use a three-factor formula of property, payroll

found in Maryland Regulation 03.04.03.10.

associated with the privilege of occupying or

and double-weighted receipts. The sum of the

using the property, including such items as fixed

In addition, manufacturing corporations with

property factor, payroll factor and twice the

rent, percentage rent, real estate taxes,

more than 25 employees should complete Form

receipts factor is divided by four to arrive at the

insurance and maintenance, are multiplied by

500MC if apportionment is used.

final apportionment factor. To review these

eight. Expens es for gas, electricity, oil, water or

rules, see Maryland Regulation 03.04.03.08.

SPECIAL RULES

other items normally consumed are excluded.

Specific requirements regarding each factor are

If the apportionment formula does not fairly

set forth below:

Lease or rental expense below the market

represent the extent of the corporation’s activity

rate must be adjusted to reflect a reasonable

RECEIPTS FACTOR

The receipts factor

within Maryland, the Maryland Revenue

market rate and then capitalized. Sublease

includes the amounts of income reported during

Administration Division may alter the formula or

income cannot be used to arrive at the

the tax year as gross receipts or sales less

components accordingly.

capitalized value of leased or rented property,

returns and allowances, dividends, interest,

but must be included in the receipts factor.

The corporation’s share of receipts, property

gross rents, royalties, capital gains and other

and payroll of a partnership or joint venture is

income on the federal return.

Improvements to the leased or rented

included in the corporation’s factors as if they

property that revert to the owner at expiration of

Gross receipts from sales of tangible

were the direct receipts, property and payroll of

the lease or rental term are amortized and not

personal property are included in the numerator

the corporation. The partnership share is

capitalized. The actual cost of the improvements

if the property is delivered or shipped to a

included only to the extent of the factors required

is divided by the number of years remaining for

purchaser that takes possession in Maryland,

for the corporation.

the lease or rental term and the result is included

regardless of f.o.b. point or other conditions of

in the factor for each tax year.

Income may be allocated by separate

sale. Sales of tangible personal property to an

account ing when the activity of the corporation

out-of-state purchaser are also included in the

Property that has remained idle and has not

within Maryland is nonunitary. A corporation may

numerator if the purchaser takes possession in

produced any revenue for a period of five or

not use the separate accounting method without

Maryland. Sales of property in transit that are

more years is not included in the factor.

prior approval of the Revenue Administration

destined for Maryland are included in the

PAYROLL FACTOR All compensation is to be

Division.

numerator.

included in the numerator, both when the indi-

An election to treat certain stock purchases

Gross receipts from service-related activities

vidual’s service is performed entirely within

under IRC Section 338(h)(10) is also recognized

are included in the numerator if the receipts are

Maryland, and when the individual’s service is

by the State of Maryland.

derived from customers within this State. There

performed both within and without Maryland but

are specific rules to determine “Customers

the service performed outside Maryland is

Within this State.” To review these rules, see

incidental to the individual’s service within.

Maryland Regulation 03.04.03.08 D.

Compensation is also included in the numer-

Instructions For Form 500 - Maryland Corporation Income Tax Return - 2011 Page 10

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