SB 19
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Enrolled - Revised
Senate Bill 19 (Chair, Budget and Taxation Committee)(By Request -
Departmental - Commerce)
Budget and Taxation Ways and Means
Economic Development - Biotechnology Investment Incentive Tax Credit
Program - Alterations and Study
This departmental bill alters the biotechnology investment incentive tax credit by
(1) reducing the percentage value of the tax credit; (2) terminating the program effective
June 30, 2028; (3) establishing the objective and goals of the program; (4) altering certain
eligibility requirements; and (5) requiring the Department of Commerce to report specified
information.
The bill also prohibits Commerce from certifying investments in a single biotechnology
company (1) that exceed 10% of the total appropriations to the reserve fund for that
fiscal year or (2) whose investors have received $7.0 million in aggregate funding for all
fiscal years. The bill takes effect July 1, 2021, and applies to all tax credit certificates
issued after June 30, 2021.
Fiscal Summary
State Effect: The bill will not alter the fiscal impact of the program in the near term beyond
that provided under current law.
Local Effect: None.
Small Business Effect: Commerce has determined that this bill has a meaningful impact
on small business (attached). The Department of Legislative Services (DLS) concurs with
this assessment. (The attached assessment does not reflect amendments to the bill.)
Analysis
Bill Summary: Under current law, an investor who invests at least $25,000 in a qualified
Maryland biotechnology company (QMBC) can claim a credit equal to 50% of the
investment, not to exceed $250,000. If the qualified biotechnology company is located in
Allegany, Dorchester, Garrett, or Somerset counties, the value of the credit for investments
made in these companies is equal to 75% of the investment, not to exceed $500,000. The
bill reduces the percentage value of the tax credit from 50% to 33% of the investment and
from 75% to 50% for investments in companies located in the counties described above.
The bill specifies that a qualified investor does not include a founder or current employee
of the QMBC if the company has been in active business for more than five years.
The bill specifies that the biotechnology investment incentive tax credit is intended to foster
the growth of Maryland’s biotechnology industry by increasing investment in early stage
companies with the goal of increasing the number of companies developing
biotechnologies in Maryland, increasing overall investments in the biotechnology sector,
and increasing the number of individual investors actively investing in Maryland’s life
sciences companies.
Generally, in order to be considered eligible as a QMBC under current law, the company
may not have been in active business longer than 12 years. However, eligibility related to
the length of time in active service has been expanded since the program’s inception to
include (1) a company that has been in active business for up to 15 years if Commerce
determines that the company requires additional time to complete the process of regulatory
approval; (2) a company that has been in active business no longer than 12 years from the
date that the company first received a qualified investment under this section; and (3) a
company that meets specified program requirements within two months of receiving a
qualified investment. Accordingly, biotechnology companies that have been in active
business for up to 24 years may be eligible for the program. Exhibit 1 shows the changes
in eligibility criteria since the program’s inception.
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Exhibit 1
Qualified Maryland Biotechnology Company
Operations Criteria
Legislation Eligibility Standard
Chapter 99 of 2005 In business up to 10 years
Chapter 518 of 2008 In business up to 12 years if the Department of
Commerce (Commerce) determines necessary for
regulatory reasons
Chapter 349 of 2011 In business up to 15 years (fiscal 2012 and 2013)
Chapters 75 and 76 of 2013 In business for up to 10 years from the date the company
first received a qualified investment under the program
Chapters 475 and 476 of 2017 In business up to 12 years
In business up to 15 years if Commerce determines
necessary for regulatory reasons
In business for up to 12 years from the date the company
first received a qualified investment under the program
Meets specified program requirements within
two months of receiving a qualified investment
The bill specifies that a QMBC is a company that (1) has been in active business no longer
than 12 years or (2) meets specified program requirements within two months of receiving
a qualified investment.
Commerce must report annually on (1) the initial tax credit certificates awarded for
investments in QMBCs that were not certified by the department in the previous year and
(2) for each QMBC that receives an investment, the number of years the company has been
in active business and the number of years qualified investors in the company have received
tax credits. In addition, Commerce must in consultation with qualified experts in the
biotechnology industry (1) study the methods and criteria by which the department might
competitively award tax credits; (2) develop strategies to increase tax credits awarded to
early-stage biotechnology companies; and (3) report its findings to the General Assembly
by December 1, 2021.
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Current Law: A biotechnology company is 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. A company is
any entity of any form duly organized and existing under the laws of any jurisdiction for
the purpose of conducting business for profit. A company does not include a sole
proprietorship. A company also must (1) have its headquarters and base of operations in
the State; (2) have fewer than 50 full-time employees; (3) not have its securities publicly
traded on any exchange; and (4) have been certified as a biotechnology company by
Commerce.
Commerce may not certify investments in a single biotechnology company that total more
than 15% of the total appropriations to the reserve fund for that fiscal year.
Background: In response to concerns about the impacts of tax credits, Chapters 568 and
569 of 2012 established the Tax Credit Evaluation Act, a legislative process for evaluating
certain tax credits. The evaluation process is conducted by a legislative evaluation
committee. The committee was required to review and evaluate the biotechnology
investment incentive tax credit by July 1, 2018. The report can be found on the DLS website.
The information and analysis provided in the report found that since the program’s
inception the State has not closed the financing gap with industry leaders, California and
Massachusetts, and has actually fallen further behind. DLS failed to find that the program
led to a statistically significant increase in industry investment. Additionally, data collected
by DLS failed to show that the State tax credit increased the total number of active
biotechnology companies in Maryland. DLS recommended that the General Assembly
should consider eliminating the program in its current form or allowing the tax credit to
sunset in two years and replacing it with a more effective program based on
19 recommendations. Alternatively, the General Assembly could consider providing a
federal Small Business Innovative Research program matching grant to encourage the
biotechnology industry in Maryland.
State Fiscal Effect: The bill alters the tax credit program and terminates the program
effective June 30, 2028. As a result, general fund expenditures will decrease beginning in
fiscal 2029.
The awarding of tax credits is subject to the amount appropriated to the reserve fund, and
the bill does not alter this amount. The fiscal 2022 State budget includes $12.0 million in
funding for the program. It is expected that Commerce will award the maximum amount
of credits. Accordingly, the fiscal impact of the program through fiscal 2028 will not be
altered beyond that provided under current law.
SB 19/ Page 4
Additional Information
Prior Introductions: None.
Designated Cross File: None.
Information Source(s): Department of Commerce; Department of Legislative Services
Fiscal Note History: First Reader - January 25, 2021
rh/jrb Third Reader - March 18, 2021
Revised - Amendment(s) - March 18, 2021
Enrolled - April 12, 2021
Revised - Amendment(s) - April 12, 2021
Analysis by: Robert J. Rehrmann Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 19/ Page 5
ANALYSIS OF ECONOMIC IMPACT ON SMALL BUSINESSES
TITLE OF BILL: Economic Development – Biotechnology Investment Incentive Tax
Credit Program – Alterations
BILL NUMBER: SB 19
PREPARED BY: Michael Siers
PART A. ECONOMIC IMPACT RATING
This agency estimates that the proposed bill:
___ WILL HAVE MINIMAL OR NO ECONOMIC IMPACT ON MARYLAND SMALL
BUSINESS
OR
X WILL HAVE MEANINGFUL ECONOMIC IMPACT ON MARYLAND SMALL
BUSINESSES
PART B. ECONOMIC IMPACT ANALYSIS
Maryland has one of the top biotechnology clusters in the country. Maryland has a number
of key assets supporting the sector, including:
the State’s highly ranked colleges and universities which produce thousands of
highly qualified workers each year;
the location of several key federal agencies, including the Centers for Medicare and
Medicaid Services, the US Food and Drug Administration, and the
National Institutes of Health; and
The presence of Fort Detrick and other military installations, which house such
important research as the US Army Medical Research and Development Command.
In addition to Maryland’s existing assets, the State encourages the growth of a dynamic
ecosystem of biotechnology firms through a number of different policies. One of these is
the Biotechnology Incentive Investment Tax Credit (BIITC). The BIITC, established in
2005 and funded in 2007, has quickly become one of the State’s most popular tax credits
SB 19/ Page 6
and has become oversubscribed. In addition to being oversubscribed, some businesses have
received greater tax credits than others. Between 2007 and 2019, 9% of companies that
benefitted from the BIITC received 50% of the total available funding.
The proposed legislation aims to rework some of the caps and credit allocation measures
to ensure that more firms are able to benefit from the program. Although job creation is not
one of explicit policy goals of the program under the proposed legislation, more broadly
and equitably distributing funding should lead to an increase in the number of jobs
supported in the State. The current ecosystem in Maryland consists of a number of small
companies. In 2019, the 500+ biotechnology companies in the State employed an average
of 20 workers. On average, these workers earned over $131,000, more than double
Maryland’s average wage. By reworking the BIITC to support more businesses, Maryland
can continue to support a growing sector with high wages and innovative technologies.
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Statutes affected: Text - First - Economic Development – Biotechnology Investment Incentive Tax Credit Program – Alterations: 10-725 Tax General
Text - Third - Economic Development – Biotechnology Investment Incentive Tax Credit Program – Alterations: 10-725 Tax General
Text - Enrolled - Economic Development - Biotechnology Investment Incentive Tax Credit Program - Alterations and Study: 10-725 Tax General, 2-021 Tax General, 2-021 Tax General