Maryland enacts legislation adopting single sales factor apportionment

Eversheds Sutherland (US) LLP

On April 24, Maryland Governor Larry Hogan signed Senate Bill 1090 and House Bill 1794 (collectively, the Bills), which adds Maryland to the growing list of states that are moving towards a single sales factor formula to apportion corporate net income. Under prior Maryland law, most corporations1 generally used a three-factor formula based on in-state property, payroll and a double-weighted sales factor. The newly enacted Bills provide a four-year phase-in period to transition from Maryland’s current three-factor formula to a single sales factor formula by tax year 2022. Interestingly, the Bills also allow certain “Worldwide Headquartered Companies” to elect to use the current three-factor formula rather than the new single sales factor formula.


In January 2016, the Maryland Economic Development and Business Climate Commission (Commission) recommended that Maryland adopt single sales factor apportionment as the standard apportionment method.2 The recommendation followed a comprehensive study by the Commission, which concluded that adopting single sales factor apportionment would help Maryland compete with other states in attracting and retaining businesses. The Commission acknowledged that single sales factor apportionment is advantageous for headquartered companies in the state or other companies with significant property or payroll in the state.3

Single Sales Factor Phase-In Period

Rather than the immediate application of the single sales factor formula upon enactment, the Bills provide a four-year phase-in period beginning after December 31, 2017, but before January 1, 2019, as shown in the chart below. For prior tax years, corporations will continue to use Maryland’s current three-factor apportionment formula, under which the sales factor comprises 50% of the final apportionment factor. Beginning in tax year 2018 and continuing in 2019, 2020 and 2021, corporations will utilize a slightly modified version of Maryland’s three-factor apportionment formula. Under this slightly modified version, each tax year the sales factor will make up a larger portion of the final apportionment factor and the denominator will increase, until single sales factor apportionment is fully phased-in in tax years beginning after December 31, 2021.

The Bills require each corporation carrying on a trade or business within and outside Maryland to calculate its Maryland taxable income using the aforementioned modified three-factor apportionment formula for tax years 2018-2021 and the single sales factor apportionment formula for tax years 2022 and beyond. 

Election for Worldwide Headquartered Companies

Corporations that qualify as a “Worldwide Headquartered Company” each tax year may elect to use Maryland’s current three-factor formula instead of the modified or single sales factor apportionment formulas. 

The Bills provide three requirements to qualify as a Worldwide Headquartered Company. The first requirement is the corporation has filed a Securities and Exchange Commission Form 10-Q for the quarterly period ending June 30, 2017. The second requirement is for the corporation to have its “principal executive office” in the state of Maryland. The final requirement is that the corporation has employed at all times between July 1, 2017, and June 30, 2020, at least 500 full-time employees at its principal executive office in Maryland. 

Eversheds Sutherland Observation:

The Worldwide Headquartered Companies election raises several issues. As a practical matter, it is unclear how to define “principal executive office.” Corporate taxpayers will likely need to seek clarification on the Comptroller’s interpretation of this undefined term. More broadly, explicitly favoring in-state headquartered companies over out-of-state companies may raise constitutional questions. 


1 Although corporations generally are required to use a three-factor apportionment formula under prior law, certain manufacturing corporations are required to use a single sales factor formula. Md. Code Ann., Tax-Gen. § 10-402(c).
2Report of the Maryland Economic Development and Business Climate Commission, Phase II: Taxes, 37-38 (Jan. 2016).
3Id. at 38.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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