The Comptroller of Maryland recently issued Tax Alert 04-19, which provides guidance on the taxation and apportionment of GILTI. The Alert makes clear that GILTI is not a dividend or deemed dividend and therefore is not eligible for Maryland’s dividend subtraction. Under Maryland law, the starting point for Maryland taxable income is federal adjusted gross income as reported on Line 28 of the federal form 1120. Corporations are then allowed to subtract the special deductions that apply for federal purposes. Thus, Maryland taxable income will include GILTI as adjusted by the section 250 deduction. With regards to apportioning GILTI, the guidance provides that the total amount of GILTI will be included in the denominator. Because GILTI is considered, at least by the Comptroller, to be income attributable to intangibles, it will be included in the Maryland sales factor numerator based on the average of the property and payroll factors. If the resulting apportionment does not fairly represent the extent of a corporation’s activity in Maryland, the Comptroller may alter the formula or its components. Any request for alternative apportionment must be in writing, must set forth the proposed alternative calculation, and must be submitted at the time the return is filed. The Alert confirms that manufacturing corporations that use a single sales factor apportionment formula will not include GILTI in the apportionment factor.
For pass-through entities, GILTI is included in Maryland taxable income but the special deduction under IRC section 250 is not allowed. However, pass-through entities will essentially use the same method to apportion GILTI. The Alert also provides guidance on the treatment of GILTI for individuals, fiduciaries, and non-residents. Please contact Dan McGuire at 703-286-8275 with questions on the Alert.