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Editorial 7 MIN READ

Maryland in late 2022: the $300 annual return is the story

A $100 filing fee is the easy part; the Personal Property Return and an 8.25% corporate rate are where Maryland gets expensive

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 6 sections
  1. The mechanics of forming
  2. The annual return that surprises people
  3. The 8.25% corporate rate, and the pass-through workaround
  4. The digital advertising tax, still pending
  5. Who Maryland actually makes sense for
  6. Sources

orming a Maryland LLC costs $100. Keeping it alive costs at least $300 a year, due April 15, whether the LLC earned a dollar or not. Those two numbers explain most of what a founder needs to know about Maryland filing fees in 2022.

The rest of the story is what sits behind the flat $300: an 8.25% corporate income tax, a pass-through workaround the General Assembly wrote in 2020, and a digital advertising tax that spent most of 2022 in court.

The mechanics of forming

You file Articles of Organization with the Maryland State Department of Assessments and Taxation (SDAT), the agency that handles both business formation and the state's personal property assessment. The authorizing statute is the Maryland Limited Liability Company Act, codified at Corporations and Associations Article § 4A. The Articles themselves are short: name of the LLC, principal office address in Maryland, name and address of the resident agent, purpose clause, and the signature of the person authorizing the filing.

The base filing fee is $100. Expedited processing is $50 on top, which moves a filing from SDAT's standard queue (which in 2022 has been running weeks behind, sometimes two months in the backlog) to a seven-business-day window. If you are closing a financing, you pay the $50. If you are forming a holding vehicle with no deadline, you do not.

SDAT accepts filings through Maryland Business Express, the state's online portal, by mail to the Charter Division in Baltimore, or in person. Same-day counter service exists at a surcharge but is not reliable in 2022 given staffing; the online route is the one that works.

You will also need an EIN from the IRS, a resident agent with a Maryland street address, and if you plan to hire or sell taxable goods, a Combined Registration Application with the Comptroller. None of those three cost anything at formation.

The annual return that surprises people

Maryland does not charge a franchise tax the way Delaware does. It charges something that in practice feels similar and in some years costs more. Every Maryland LLC, corporation, LP, LLP, and business trust files an Annual Report with SDAT, and most of them also file a Personal Property Return (PPR) at the same time. The combined filing is due April 15.

The filing fee for the Annual Report is $300 for most entities. That figure is not scaled by revenue, not scaled by member count, not scaled by whether you did business. A dormant Maryland LLC with no bank account, no employees, and no income owes the same $300 an operating LLC owes. The statutory authority sits in the Corporations and Associations Article and is administered by SDAT under Tax-Property Article § 11-101 and following.

Miss the April 15 deadline and you enter a forfeiture track. SDAT sends a notice; if you remain delinquent, the entity is eventually listed as "not in good standing," which among other things blocks you from filing amendments, dissolving cleanly, or proving to a bank that your LLC still legally exists. Penalty interest accrues. For a small LLC that genuinely did nothing for a year, the $300 plus penalties can easily exceed what the entity was worth holding open.

This is the single most expensive recurring item in Maryland maintenance, and it is the one new founders most often underweight when comparing Maryland to, say, Delaware or Virginia. Delaware's $300 LLC tax is the same dollar amount; Maryland's looks the same on paper and reaches further into the LLC's operations because of the personal property component for anyone who owns tangible business assets in the state.

The 8.25% corporate rate, and the pass-through workaround

For LLCs taxed as partnerships or disregarded entities, income flows through to the members' personal returns and is taxed at Maryland's graduated personal rates, which top out above 5.75% before adding a local county piggyback of between 2.25% and 3.2%. For LLCs that elect C-corp treatment or for actual Maryland corporations, the state imposes a flat corporate income tax of 8.25%, authorized by Tax-General Article § 10-105. That rate sits in the upper tier of state corporate rates in 2022 and has not been reduced by the General Assembly since its last increase.

In 2020, Maryland enacted Senate Bill 523, codified at Tax-General Article § 10-102.1, which created an elective pass-through entity (PTE) tax. The mechanics are the federal SALT cap workaround that a growing number of states have adopted following IRS Notice 2020-75, which blessed state-level entity taxes as deductible at the federal level. A Maryland partnership or S-corp (or LLC taxed as either) may elect to have the entity itself pay Maryland tax on the members' distributive shares. The entity deducts the payment federally, which recaptures what the $10,000 individual SALT cap would otherwise disallow. The members receive a credit on their Maryland personal returns for the entity-level tax already paid.

For a Maryland LLC with two members each in the top bracket and six figures of pass-through income, the PTE election is usually worth several thousand dollars in federal tax saved per member. It costs paperwork and coordination with an accountant who knows the mechanics. The Comptroller's Form 511 is the implementing return.

Founders forming a Maryland LLC in late 2022 and expecting meaningful profit should ask their accountant about the PTE election before the first estimated payment is due. The election interacts awkwardly with nonresident members and with entities that have a mix of individual and corporate owners, and it is not reversible mid-year without pain.

The digital advertising tax, still pending

Maryland enacted the nation's first gross-receipts tax on digital advertising services in 2021, codified at Tax-General Article § 7.5-103. The rate scales from 2.5% to 10% on gross receipts from digital advertising services attributable to Maryland, applying to platforms with at least $100 million in global annual revenues. The tax has been litigated continuously since enactment. In October 2022, an Anne Arundel County Circuit Court ruled the tax unconstitutional on several grounds, including preemption by the federal Internet Tax Freedom Act and violations of the Commerce Clause. The state has appealed.

The relevance to most Maryland LLCs is zero. The $100 million revenue threshold puts the tax outside the concern of almost any newly formed Maryland entity. The relevance to anyone advising a Maryland LLC that acts as a counterparty to a large advertising platform is that the pass-through of the tax to in-state customers was prohibited by the statute and has been a source of separate litigation. If you are drafting advertising contracts in Maryland in late 2022, you are watching the appeal.

For anyone else, it is a reminder that Maryland's tax code is willing to try novel revenue instruments, which in turn means the compliance surface of a Maryland entity is a little wider than in a state that sticks to conventional bases.

Who Maryland actually makes sense for

On pure filing fees, Maryland and Delaware are close to a wash. Maryland charges $100 to form against Delaware's $90. Both charge $300 a year on the flat recurring line. Maryland pulls ahead (in the wrong direction) on two fronts: the 8.25% corporate rate, which is roughly a full point above Delaware's 8.7% only in the sense that Maryland stacks county piggybacks on the personal side as well; and the Personal Property Return mechanic, which reaches LLCs that hold tangible assets in the state and which has no Delaware analog for an entity that does not operate there.

The case for forming in Maryland is operational, not structural. If your LLC employs people in Maryland, owns property in Maryland, or signs contracts governed by Maryland law, forming here saves you the foreign-qualification filing you would otherwise owe, which runs the same $100 plus $300 annually anyway. Forming in Delaware or Wyoming and qualifying into Maryland doubles the annual maintenance without cutting the Maryland tax exposure.

The case against Maryland is familiar: a Maryland LLC with one nonresident member doing consulting work in, say, Virginia, inherits Maryland tax nexus it did not need, plus the $300 PPR obligation, plus the 8.25% corporate line if the member ever elects C-corp treatment. For a non-operating holding vehicle, Maryland is the wrong answer; it taxes the existence of the entity and does not offer a case-law premium that justifies the cost.

Form in Maryland when the business is physically in Maryland. Form somewhere else when it is not, and qualify in only if and when Maryland activity begins. The PTE election, once you have the Maryland entity, is the single highest-value move a profitable LLC can make in 2022; the April 15 deadline is the single most missable one.

Sources

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