Maryland’s Tax Treatment of Regulated Investment Companies (RICs)

Regulated investment companies (RICs) are investment vehicles that pool capital from multiple investors to invest in various securities, including stocks, bonds, and other assets. For Maryland income tax purposes, RICs are treated as corporations, as per Section 10-101 and Section 10-304 of the Tax General Art. This means that RICs are subject to Maryland’s corporate income tax.

Interestingly, the tax treatment of RIC in Maryland is similar to that of the federal government. In fact, Maryland’s starting point for computing taxable income is federal taxable income after special deductions for dividends, as outlined in Paragraph 10-510 of the Tax General Art. This means that RICs in Maryland are subject to the same tax treatment as they are at the federal level, which can simplify tax compliance and reduce the administrative burdens for RICs operating in multiple states.

Maryland’s Corporate Income Tax Treatment of RIC

However, RICs in Maryland must make a subtraction modification when calculating their tax liability, as specified in Paragraph 10-525 of the Tax General Art. This subtraction modification applies to special industries or entities and is intended to promote fairness and equity in the tax code. It allows RICs to subtract from their Maryland taxable income any income that was previously taxed at the state level, such as interest income from Maryland municipal bonds.

By providing a subtraction modification for RIC, Maryland seeks to create a level playing field for all businesses and industries operating in the state. This promotes a fair and competitive business environment, which can help attract new investment and create jobs. Additionally, the similarity in tax treatment between Maryland and the federal government can simplify tax compliance and reduce the administrative burden for RICs, ultimately saving them time and money.

In summary, RICs in Maryland are treated as corporations for income tax purposes, and their tax treatment is similar to that at the federal level. However, RIC must make a subtraction modification when calculating their tax liability to ensure fairness and equity in the tax code. Overall, Maryland’s tax treatment of RICs helps to promote a fair and competitive business environment while minimizing the administrative burden for these investment vehicles.