Agenda Item 5
February 23, 2010
Public Hearing
MEMORANDUM
TO:
FROM:
County Council
{i
Michael Faden, Senior Legislative Attorney
Public Hearing:
Expedited Bill 5-10, Economic Development
Credit - County Supplement
Biotechnology
SUBJECT:
Expedited Bill 5-10, Economic Development - Biotechnology Credit - County
Supplement, sponsored by Council member Knapp, Council Vice President Ervin,
Councilmember Leventhal, Council President Floreen, and Councilmember Trachtenberg, was
introduced on February 2, 2010. A Planning, Housing and Economic Development Committee
(PH ED) worksession is tentatively scheduled for March 1 at 2:00 p.m.
Bill 5-10 would commit the County to supplement the state biotechnology investment
incentive tax credit, allowed under Maryland Code, Tax-General Article
§
10-725 (see ©5-9).
The County supplement would be 50% of the state tax credit for an investment in a qualified
Montgomery County biotechnology company. For more details on the state credit, see the fact
sheet prepared by County Department of Economic Development staff on © 10-11.
This packet contains:
Expedited Bill 5-10
Legislative Request Report
State
tax
credit law
Fact sheet re state tax credit
Circle #
1
4
5
10
F:\LA W\BILLS\I 005 Biotech Credit Suppleent\Public Hearing Memo.Doc
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill No.
_----!:5:.....-1~0
_ _ __
Concerning: Economic Development ­
Biotechnology Credit -
County
Supplement
Revised:
1-28-10
Draft No.
1
Introduced:
February
2,2010
Expires:
August
2.2011
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _--:-_ _ _ _ _ __
Sunset Date: -'N:.!.:o=n:.=.e-:--__:::_----
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmember Knapp, Council Vice President
Ervin,
Councilmember
Leventhal, and Council President Floreen
AN EXPEDITED ACT
to:
(1)
authorize the County to supplement the state biotechnology investment
incentive tax credit; and
generally amend the law governing County financial incentives for
investment in certain businesses.
(2)
By adding
Montgomery County Code
Chapter 20, Finance
Section 20-76A
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* *
*
Heading or defined term.
Added to existing law
by
original
bill.
Deletedjrom existing law
by
original
bill.
Added
by
amendment.
Deletedjrom existing law or the
bill by
amendment.
Existing law unaffected
by bill.
The County Council for Montgomery County, Maryland approves the following Act:
 PDF to HTML - Convert PDF files to HTML files
EXPEDITED BILL
No. 5-10
1
2
Sec.
1.
Section 20-76A is inserted as follows:
20-76A.
{ill
Biotechnology investment incentive tax credit supplement.
The Director of Finance must
~ ~
Biotechnology Investment Incentive
Tax Credit Supplement to each applicant who meets certain eligibility
standards.
3
4
5
6
7
(hl
An applicant, who need not be
the Supplement if:
~
County resident, is eligible to receive
8
9
10
11
ill
the applicant has received
~
final tax credit certificate for the
Maryland biotechnology investment incentive tax credit for the
year in which the Supplement is claimed; and
ill
the tax credit received
Qy
the applicant was generated
Qy
an
investment in
~
12
13
14
15
16
qualified Maryland biotechnology company that
has its headquarters and base of operations in the County.
!£)
The County Executive,
Qy
regulations issued under Method
ill
may
impose other eligibility standards. However, those standards must not
make any person ineligible to receive the Supplement who would be
eligible under subsection
ili1
17
18
19
@
The Supplement paid to each recipient must equal 50% of any tax credit
the recipient receives from the State biotechnology investment incentive
tax credit program.
20
21
22
ill
The Director must require each eligible person to submit an application
for the Supplement and may take any other action necessary to
administer the Supplement. The Executive may issue regulations under
Method
23
24
25
26
ill
to specify an application process and otherwise
implement
this Section.
ill
If the Comptroller of the Treasury agrees, the Director may arrange for
the Comptroller to
~
the Supplement.
To the extent that the
27
o
F;\LAW\BILLS\I005 Biotech Credit Suppleent\IO05 Bill.Doc
 PDF to HTML - Convert PDF files to HTML files
ExPEDITED BILL
No. 5-10
28
Comptroller does not
~
the supplement, the Director must
~
it
29
30
31
directly to each eligible applicant.
(g)
A person who submits
§;
false or fraudulent application, or withholds
§;
material information, to obtain
committed
§;
payment under this Section has
32
33
34
Class A violation. In addition, the person must repay the
County for all amounts improperly paid and all accrued interest and
penalties that would
rumlY
to those amounts as if they were overdue
35
36
37
taxes. A person who violates this Section is liable for all court costs and
expenses of the County in any civil action brought
Qy
the County to
recover any payment, interest, or penalty. The County may collect any
amount due, and otherwise enforce this Section,
Qy
any appropriate
legal action.
38
39
40
41
42
43
44
!hl
If all or part of the allowed state tax credit is recaptured under the
applicable state law, the recipient must repay the County within 60 days
the portion of any Supplement paid
Qy
the County that was based on the
recaptured credit.
Sec. 2.
Expedited Effective Date.
45
46
The Council declares that this Act is necessary for the immediate protection of
the public interest. This Act takes effect on the date when it becomes law.
Apl?roved:
47
48
49
Nancy Floreen, President, County Council
50
Date
Approved:
51
52
Isiah Leggett, County Executive
Date
F:\LAW\BILLS\/ 005 Biotech Credit Suppleent\/ 005 BilI.Doc
 PDF to HTML - Convert PDF files to HTML files
LEGISLATIVE REQUEST REPORT
Expedited Bill 5-10
Economic Development
-
Biotechnology Credit
-
County Supplement
DESCRIPTION:
Authorizes the County to supplement the state biotechnology
investment incentive tax credit, allowed under Maryland Code, Tax­
General Article
§10-725.
The County supplement would be
50%
of
the state tax credit for an investment in a qualified Montgomery
County biotechnology company.
Need for further incentives to invest in local startup biotechnology
firms.
To supplement the state tax credit program for investments in startup
biotechnology companies.
Finance Department, Department of Economic Development
To be requested.
To be requested.
To be requested.
To be researched.
Michael Faden, Senior Legislative Attorney,
240-777-7905
Applies to credits offered for companies anywhere in the County.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
lMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
Not applicable
F:\LA W\BILLS\I 005 Biotech Credit Suppleent\Legislative Request Reporl.Doc
f:\law\bills\1005 biotech credit suppleent\legislative request report.doc
 PDF to HTML - Convert PDF files to HTML files
§
10-725. Biotechnology'investment incentive tax credit.
(a)
Definitions.
-
(1)
In this sectiori the following words have the meanings
indicated.
(2) "Biotechnology company" means a company organized for profit that is
primarily engaged in the research, development, or commercialization of
, I
innovative and proprietary technology that comprises, interacts with, or
analyzes biological material including J;>iomolecules (DNA, RNA, or protein),
cells, tissues, or organs.
(3)
(i)
"Company" means any entity of any form duly organized and
existing under the laws of any jurisdiction for the purpose of conducting
business for profit .
. (ti)"Company" does not include a sole proprietorship.
(4) "Department" means the Department of Business and Economic
Development.'
.
(5) (i)"Investment" means the contribution of money in cash or cash
equivalents expressed in United States dollars, at a risk ofloss,
to
a qualified
Maryland biotechnology company in exchange for stock, a partnership or
membership interest, or other ownership interest in the equity of the qualified
Maryland biotechnology company, title
to'
which ownership interest shall vest
in the qualified investor.
"
(li)
"Investment" does not include debt.
(iii)
For purposes of this section, an investment is at risk of loss when
its repayment entirely depends upon the success of the business operations of
the qu;ilified company.
(6)
(i)
"Qualified investor" means any individual or entity that invests at
l,east $25,000 ina qualified Marylan.d biotechnology company and that is
required to file an income tax return in any jurisdiction.
(ti) "Qualified investor" does not include a qualified pension. plan,
individual retirement account, or other qualified retirement plan under the
Employee Retirement Income Security Act of 1974, as amended, or fiduciaries
or custodians under such plans, or similar tax-favored plans or entities under
the laws of other countries.
(7)
(i)
"Qualified Maryland biotechnology company" means a biotechnol­
·ogy company that:
1.
has its headquarters and base of operations in this State;
2. has fewer than 50 full-time employees;
. 3. except as provided in subparagraph (ti) of this paragraph, has been
in active business no longer than 10 years;
4. does not have its securities publicly traded on any exchange; and
5. has been certified as a biotechnology company by the Department.
(ii)
"Qualified Maryland biotechnology company" includes a company
that has been
in
active business for up. to 12 years
if
the
Departm~nt
determines that the company requires additional time to complete the process
of regulatory approval.
(b)
bi general.
-
(1)
Subject to paragraphs (2) and (3) of this subsection and
subsections (d) and (e) of this section, for the taxable year in which an
investment in a qualified Maryland biotechnology company is made,
a
quali­
fied investor may claim a credit against the State income tax in an amount
equal to the amount of tax credit stated in the final credit certificate approved
by the Secretary for the investment as provided under this section.
(2) To be eligible for the tax credit described in paragraph (1) of this
subsection, the qualified investor shall be:
133
 PDF to HTML - Convert PDF files to HTML files
§
10·725
TAX - GENERAL
CD
for a company, duly organized and in good standing in the jurisdic­
tion under the laws under which it is organized;
(ii)
for a company, in good standing and authorized or registered to do
business in the State;
(iii) current in the payment ofall tax obligations to the State or any unit
or subdivision of the State; and
(iv) not "in default under the terms of any contract with, indebtedness
to; or grant from the State or any unit or subdivision of the State.
" (3) To be eligJble for the taX credit described in paragraph
(1)
of this
subsection, the qualified investor may not, after making the proposed invest­
ment, own or control more than 25% of the equity interests in the qualified
Maryland biotechnology company in which the investment is to be made.
"
(c)
Certificate.
-
(1)
At least 30 days prior to making an investment in
Ii
qualified Maryland biotechnology company for which a qualified investor
would be eligible for an initial taX credit certificate under subsection (b) of this
section; the qualified investor shall submit an application to the Department.
(2) The application shall evidence that the qualified Maryland biotechnol­
ogy company is:
CD in good standing;
(ii)
current in the payment of all tax obligations to the State or any miit
or subdivision of the State; and
(iii)
not in default under the terms of any contract with, indebtedness
to, or grant from the State or any unit or subdivision of the State.
(3) The Department shall:
(i)
approve all applications that qualify for credits under this section on
a first come first served basis; and
"
(ii) within 30 days of receipt of an application, certify the amount of any
approved tax credits to a qualified investor.
(4)
(i)
After the date on which the Department issues an initial tax credit
certificate under this section, a qualified investor shall have 30 calendar days
to make an investment in a qualified Maryland biotechnology company under
this section.
(ii)
Within 10 calendar days after the date on which a qualified investor
makes the investment, the qualified investor shall provide to the Department
notice and proof of the making of the investment, .including:
1.
the date of the investment;
2. the amount invested;
3. proof of the receipt of the invested funds by the qualified Maryland
biotechnology company;
4. a complete description of the nature of the ownership interest in
the equity of the qualified Maryland biotechnology company acquired in
consideration of the investment; and
5. any reasonable supporting documentation the Department may
require.
(iii)
If a qualified investor does not provide the notice and proof of the
making of the investment required in subparagraph(ii) of this paragraph
within 40 calendar days after the date on which the Department issues an
initial tax credit certificate under this section:
134
 PDF to HTML - Convert PDF files to HTML files
2009
SUPPLEMENT
§
1
O~725
1.
the Department shall rescind the initial tax credit certificate; and
2. the credit amount allocated to the rescinded certificate shall revert
to the Maryland Biotechnology Investment Tax Credit Reserve Fund and shall
be available in the applicable fiscal year for allocation by the Department to,
. other initial
tax
credit certificates in accordance with the provisions of this
section.
, (d)
Amount of credit.
-
(1)
The tax credit allowed in an initial tax credit
certificate issued under this section is 50% of the investment in a qualified
Maryland biotechriolbgy company, not to exceed $250,000.
(2) During any fiscal year, the Secretary may not certifY eligibility for tax
credits for investments in a single qualified Maryland biotechnology company
that in the aggregate exceed 15% of the total appropriations
to
the Maryland
Biotechnology Investment Tax Credit Reserve Fund for that fiscal year.
(3) Ifthe tax credit allowed under this section in any taxable year exceeds
the total tax otherwise payable by the qualified investor for that taxable year,
the qualified investor may claim a refund in the amount of the excess.
(e)
Biotechnology Investment Tax Credit Reserve Fund.
-
(1) In this sub­
section, "Reserve Fund" mean,s the Maryland Biotechnology Investment Tax
CreditReserve Fund established under paragraph (2) of this subsection.
(2) (i) There is a Biotechnology Investment Tax Credit Reserve Fund
which is a special continuing, nonlapsing fund that is not subject to
§
7-302 of
the State Finance and Procurement Article.
(m
The money in the Fund shall be invested and reinvested by the
Treasurer, and interest and earnings shall be credited to the General Fund.
(3)
'(i)
Subject to the provisions of this. subsection, the Secretary shall
issue an initial tax credit certificate for each approved investment in a
qualified Maryland biotechnology company eligible for
a
tax credit.
(ii)
An
initial tax credit certificate issued under this subsection shall
state the maximum amount of tax credit for which the qualified investor is
eligible.
(iii) 1. Except as otherwise provided in this subparagraph, for any fiscal
year, the Secretary' may not issue initial tax credit certificates for credit
amounts in the aggregate totaling more than the amount appropriated to the
Reserve Fund for that fiscal year in the State budget as approved by the
General Assembly.
2. If the aggregate credit amounts under initial tax credit certificates
issued in a fiscal year total less than the amount appropriated to the Reserve
Fund for that fiscal year, any excess amount shall remain in the Reserve Fund
and may be issued under initial tax credit certificates for the next fiscal.year.
3 .. For' any fiscal year, if funds are transferred from the Reserve Fund
under the authority of any provision of law other than under paragraph (4) of
this subsection, the maximum credit amounts in the aggregate for which the
Secretary
m~y
issue initial
tax
credit certificates shall be reduced by the
amount transferred.
(iv) For each fiscal year, the Governor shall include in the budget bill an
appropriation to the Reserve Fund.
135
.
I
I
I
 PDF to HTML - Convert PDF files to HTML files
i
I
§
10-725
TAX - GENERAL
(v) Notwithstanding the provisions of
§
7-213 of the State Finance and
Procurement Article, the Governor may not reduce an appropriation to the
Reserve FWld in the State budget as approved by the General Assembly.
(vi) Based on the actual amoWlt of an investment made by a qualified
investor, the Secretary shall issue a final tax credit certificate to the qualified
investor.
(4) (i) Except as provided in this paragraph,· money appropriated to the
Reserve FWld shall remain in the FWld.
(ii)
1.
Within 15 days after the end of
e~ch
calendar quarter, the
Department shall notify the Comptroller as to each final credit certificate
.
issued during the quarter:
A.
the mruamum credit amoWlt stated in the initial tax credit
certificate for the investment; and
B.
the final certified credit amoWlt for the investment.
2. On notification that an investment has been certified, the Comp­
troller shall transfer an amount equal to the credit amount stated in the initial
tax credit certificate for the investment from the Reserve Fund to the General
Fund.
(f)
Recapture ofcredit.
-
(1)
The credit claimed under this section shall be
recaptured as provided in paragraph (2) of this subsection if within 2 years
from the close of the taxable year for which the credit is claimed:
(i)
the qualified investor sells, transfers, or otherwise disposes of the
ownership interest in the qualified Maryland biotechnology company that gave
rise to the credit; or
(ii) the qualified Maryland biotechnology company that gave rise to the
credit ceases operating as an active business with its headquarters and base of
operations in the Stlilte.
(2) The amount required to be recaptured under this subsection is the
product of multiplying:
(i)
the total amoWlt of the credit claimed or,
in
the case of an event
described in paragraph (l)(i) of this subsection, the portion of the credit
attributable to the ownership interest disposed of; and
(ii)
1.
100%, if the event requiring recapture of the credit occurs during
the taxable year for which the tax credit is claimed;
2. 67%, if the event requiring recapture of the credit occurs during
the first year after the close of the taxable year for which the tax credit
is
claimed; or
3. 33%, if the event requiring recapture of the credit occurs more than
1 year but not more than: 2 years after the close of the taxable year for which
the tax credit is claimed.
(3) The qualified investor that claimed the creditshall pay the amount to
be recaptured as determined Wlder paragraph (2) of this subseCtion as taxes
payable to the State for the taxable year in which the event requiring
recapture of the credit occurs.
' .
(g)
Revocation ofcertification.
-
(1) The Department may revoke its initial
or final certification of an approved credit Wlder
this
section
if
any represen­
tation in connection with the application for the certification is determined by
the Department to have been false when made.
136
 PDF to HTML - Convert PDF files to HTML files
2009
SUPPLEMENT
§
10-725
(2) The revocation may be. in full or in part as the Department may
determine and, subject to paragraph (3) of this subsection, shall be comniuni­
cated to the qualified investor and the Comptroller.
(3) The qualified investor shall have an opportunity to appeal any
revocation to the Department prior to notification of the Comptroller.
(4) The Comptroller may make an assessment against the qualified
investor to recapture any amount of tax credit that the qualified investor has
already claimed.
(h)
Reports.
-
(1)
On or before January 10 of each year, the Department
shall report to the Governor and, subject to
§
2-1246 of the State Government
Article, to the General Assembly, on the initial tax credit certificates awarded
under this section for the prior calendar year.
(2) The report required under paragraph
(1)
of this subsection shall
include for each initial tax credit certificate awarded:
(i)
the name of the qualified investor and the amount of credit awarded
or allocated to each investor;
(ii)
the name· and address of the qualified Maryland biotechnology
company that received the investment giving rise to the credit under this
section and the county where the qualified Maryland biotechnology company is
located; and
.
(iii) the dates of receipt and approval by the Department of all appli­
cations for initial tax credit certificates.. .
(3) The report required under paragraph
(1)
of this subsection shall
summarize for the category of qualified investors:
(D
the total number of applicants for initial tax credit certificates under
this section in each calendar year;
(ii)
the number of applications for which initial tax credit certificates
were issued in each calendar year; and .
(iii) the total initial tax credit certificates authorized under this section
for all calendar years under this section.
(D
Regulations.
-
The Department and the Comptroller jointly shall adopt
regulations to carry out the provisions of this section and to specify criteria and
procedures for application for, approval of, and monitoring continuing eligibil­
ity for the tax credit under this section. (2005, ch. 99; 2008, ch. 518; 2009, chs.
605,606.)
Editor's note. -
Section 2, ch. 99, Acts
Effect of amendments. -
Chapter 518,
Acts 2008, effective July 1, 2008, rewrote the 2005, provides that the act shall take effect on
section.
.
, July 1, 2005, and shall be applicable to all
Chapters 605 and 606, Acts 2009, effective taxable years beginning after December 31,
July 1, 2009, made identical
Each 2004.
(b)(l),
Section 2, ch. 518, Acts 2008, as amended by
added "individual or" in (a)(6)(i);
added "for the taxable year in which an invest·
cbs.
605 and 606, Acts 2009, provides that "this
ment in a qualified Maryland biotechnology Act shall take effect July 1, 2008. A tax credit
company is made" and deleted
~in
a qualified for an investment in a qualified Maryland bio·
Maryland biotechnology company" following technology company under the provisions of
"investment"; deleted former (e)(3)(vl.i);in the
§
10-725 of the Tax . General Article as
introductory language of
(0(1)
and in (f)(2)(ii) amended by Section 1 of this Act shall be
substituted "claimed" for
~approved"
each time claimed for the taxable year in which the in·
vestment is made."
it appears; and made stylistic
,,"all!;".".
137
 PDF to HTML - Convert PDF files to HTML files
F AQ on the Maryland Biotechnology Investor Tax Credit Program
State Program
1.
How does the MD Biotech Investor Tax Credit Program work?
Maryland's Biotechnology Investment Tax Credit program provides income tax credits for
investors in qualified Maryland biotechnology companies. This tax credit program was passed
in 2005 to offer incentives for investment in seed and early stage, privately held biotech
companies.
It
is funded through an annual appropriation. The FYI0 appropriation was $6
million.
(Note: one of the Tech Council's key legislative issues for the 2010 session is to double this to
$12 million)
The value of the credit is equal to 50% of an eligible investment (minimum $25,000) made in a
qualified Maryland biotechnology company during the taxable year. The maximum amount of
the credit cannot exceed $250,000 for any single investor.
The total amount of initial credit certificates issued in each fiscal year cannot exceed the
amount appropriated to the reserve fund in the state budget. All applications are reviewed and
approved on a first come, first served basis.
2. What is a 'qualified Maryland biotechnology company'?
According to the statute:
• A company organized for profit that is primarily engaged in the research, development, or
commercialization of innovative and proprietary technology that comprises, interacts with,
or analyzes biological material including biomolecules (DNA, RNA, or protein), cells,
tissues, or organs
• An entity of any form (except sole proprietorships) duly organized and existing under the
laws of any jurisdiction for the purpose of conducting business for profit.
• Has its headquarters and base of operations in Maryland;
• Has fewer than 50 full-time employees;
• Has been in active business no longer than 10 years (this can be extended to 12 years
under certain circumstances);
• Does not have its securities publicly traded on any exchange; and
• Has been certified as a biotechnology company by DBED.
3. What is a 'qualified investor'?
@
 PDF to HTML - Convert PDF files to HTML files
FAQ on the Maryland Biotechnology Investor Tax Credit Program
• Any individual or entity that invests at least $25,000 in a qualified Maryland biotechnology
company and that is required to file an income tax return in any jurisdiction (not just MD).
• Does not, after making the proposed investment, own or control more than 25% of the equity
interests in the qualified Maryland biotechnology company in which the investment is to be
made.
• Does not include pension plans, individual retirement account, or other qualified retirement
plans.
4. What is the maximum tax credit any single investor can get?
An investor may claim a 50% credit against their (minimum $25,000) investment in a qualified
Maryland biotechnology company, up to a ceiling of $250,000 per investor.
5. How do investors get the tax credit?
For the taxable year in which an investment in a qualified Maryland biotechnology company is
made, a qualified investor may claim a credit agamst the State income tax in an amount equal to
the amount of tax credit stated in the final credit certificate approved by the Secretary of DB ED.
If the tax credit in any taxable year exceeds the total tax otherwise payable by the qualified
investor for that taxable year, the qualified investor may claim a refund in the amount of the
excess.
6. What about investors who don't pay taxes in Maryland?
Qualified out-of-state investors receive the tax credit in the form of a direct payment from the
Comptroller of Maryland.
7. What is the maximum share of the annual program appropriation that any single
qualified Maryland biotechnology company can obtain?
No single qualified Maryland biotechnology company can claim more than 15% of the annual
program appropriation. For FYIO (total appropriation: $6 million) this means $900,000.
8. How many Montgomery County biotech companies have benefited from the program
since its inception?
For the fiscal years FY07 - FY 09, 24 of the 39 companies that benefited from the program were
based in Montgomery County. According to state data, investors in these companies received
tax credits totaling $10.5 million and invested a total of $22.4 million.