Maryland HB 439: Income Tax - Carried Interest - Additional Tax

Bill Text

EXPLANATION: CAPITALS INDICATE MATTER ADDED TO EXISTING LAW.
[Brackets] indicate matter deleted from existing law.
*hb0439*

HOUSE BILL 439
Q3 0lr1076
HB 926/19 – W&M CF SB 216
By: Delegates Mosby, Acevero, Barron, Bridges, Charkoudian, Ebersole, Ivey,
Korman, Lehman, Moon, Palakovich Carr, Pena–Melnyk, Shetty, Stewart,
Turner, Wells, Wilkins, K. Young, and P. Young
Introduced and read first time: January 23, 2020
Assigned to: Ways and Means

A BILL ENTITLED

AN ACT concerning 1

Income Tax – Carried Interest – Additional Tax 2

FOR the purpose of imposing a certain State income tax on the Maryland taxable income 3
attributable to certain investment management services of an individual or a 4
corporation or the distributive share of a pass–through entity; providing that the tax 5
does not apply under certain circumstances; defining certain terms; requiring the 6
Comptroller to provide certain notice to the Department of Legislative Services; 7
providing for the application of this Act; providing for the termination of this Act if 8
certain federal legislation is enacted into law; and generally relating to the State 9
income tax and investment management services. 10

BY repealing and reenacting, with amendments, 11
Article – Tax – General 12
Section 10–102.1(a) and (d) 13
Annotated Code of Maryland 14
(2016 Replacement Volume and 2019 Supplement) 15

BY adding to 16
Article – Tax – General 17
Section 10–102.2 18
Annotated Code of Maryland 19
(2016 Replacement Volume and 2019 Supplement) 20

SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 21
That the Laws of Maryland read as follows: 22

Article – Tax – General 23

10–102.1. 24

2 HOUSE BILL 439

(a) (1) In this section the following words have the meanings indicated. 1

(2) “Distributable cash flow” means taxable income reportable by a 2
pass–through entity on its federal income tax return for the taxable year: 3

(i) adjusted, in the case of an entity using the accrual method of 4
accounting to report federal taxable income, to reflect the amount of taxable income that 5
would have been reported under the cash method of accounting; 6

(ii) increased by the sum of: 7

1. cash receipts for the taxable year that are not includable 8
in the gross income of the entity, including capital contributions and loan proceeds; 9

2. amounts allowable to the entity for the taxable year as 10
deductions for depreciation, amortization, and depletion; and 11

3. the decrease, if any, in the entity’s liability reserve as of 12
the end of the taxable year; and 13

(iii) decreased by the sum of: 14

1. cash expenditures for the taxable year that are not 15
deductible in computing the taxable income of the entity, not including distributions to 16
shareholders, partners, or members; and 17

2. the increase, if any, in the entity’s liability reserve as of 18
the end of the taxable year. 19

(3) “INVESTMENT MANAGEMENT SERVICES” MEANS SERVICES 20
PROVIDED BY A PARTNER OR SHAREHOLDER TO A PARTNERSHIP, AN S 21
CORPORATION, OR ANY OTHER ENTITY IF THE SERVICES INCLUDE PROVIDING A 22
SUBSTANTIAL QUANTITY OF: 23

(I) ADVISING AS TO THE ADVISABILITY OF INVESTING IN, 24
PURCHASING, OR SELLING A SPECIFIED ASSET; 25

(II) MANAGING, ACQUIRING, OR DISPOSING OF A SPECIFIED 26
ASSET; 27

(III) ARRANGING FINANCING WITH RESPECT TO ACQUIRING A 28
SPECIFIED ASSET; OR 29

(IV) ANY ACTIVITY IN SUPPORT OF ANY OF THE SERVICES 30
DESCRIBED IN ITEMS (I) THROUGH (III) OF THIS PARAGRAPH. 31

HOUSE BILL 439 3

(4) “Liability reserve” means accrued unpaid liabilities that are not 1
deductible in computing taxable income. 2

[(4)] (5) “Member” means: 3

(i) a shareholder of an S corporation; 4

(ii) a general or limited partner of a partnership, limited 5
partnership, or limited liability partnership; 6

(iii) a member of a limited liability company; or 7

(iv) a beneficiary of a business trust or statutory trust. 8

[(5)] (6) “Nonresident entity” means an entity that is not formed under 9
the laws of the State and is not qualified by or registered with the Department of 10
Assessments and Taxation to do business in the State. 11

[(6)] (7) “Nonresident taxable income” means any income described in § 12
10–210(b)(1) through (4) of this title. 13

[(7)] (8) “Pass–through entity” means: 14

(i) an S corporation; 15

(ii) a partnership; 16

(iii) a limited liability company that is not taxed as a corporation 17
under this title; or 18

(iv) a business trust or statutory trust that is not taxed as a 19
corporation under this title. 20

(9) “SPECIFIED ASSET” MEANS SECURITIES, REAL ESTATE HELD FOR 21
RENTAL OR INVESTMENT, INTERESTS IN PARTNERSHIPS, COMMODITIES, OR 22
OPTIONS OR DERIVATIVES CONTRACTS. 23

(d) (1) Except as provided in [paragraph (2)] PARAGRAPHS (2) AND (3) of 24
this subsection, the tax imposed under subsection (b) of this section is the sum of: 25

(i) a rate equal to the sum of the rate of the tax imposed under § 26
10–106.1 of this subtitle and the top marginal State tax rate for i