Maryland comptroller’s guidance addresses GILTI treatment


Matt Libeg
Metro DC - Arlington
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Sonia Shaikh
Metro DC - Arlington
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Kelsie Clifton
Metro DC - Arlington
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Jamie C. Yesnowitz 
Washington, DC
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Chuck Jones 
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Lori Stolly 
T +1 513 345 4540 
The Maryland Comptroller recently issued a tax alert addressing how to treat federally generated Global Intangible Low-Taxed Income (GILTI) for purposes of the state’s income taxes imposed on corporations, pass-through entities and individuals.1

Federal income tax reform relating to foreign Provisions The adoption of the Tax Cuts and Jobs Act (TCJA) on Dec. 22, 2017, provided a significant overhaul of the federal income tax system and changed numerous provisions in the Internal Revenue Code (IRC).2 The TCJA was enacted in part to transition the U.S. toward a partial territorial system by implementing, under IRC Sec. 965, a one-time deemed repatriation of foreign earnings, reportable by calendar-year taxpayers as income on the 2017 tax return.3 The income inclusion was partially offset by a “participation exemption,” which allowed for a deduction that effectively reduced the tax rate on such repatriated earnings to 15.5% on cash and cash equivalents, and 8% on non-cash assets.4

In continuance of the shift toward a partial territorial regime for tax years beginning after 2017, IRC Sec. 951A was added, establishing GILTI, a new category of income recognized by U.S. shareholders of controlled foreign corporations. Specifically, the GILTI provision requires U.S. shareholders owning 10% or more of a controlled foreign corporation to include GILTI in their current taxable income.5

The inclusion of GILTI is partially offset by two deductions contained in IRC Sec. 250.

The first deduction is currently equal to 50% of the GILTI inclusion.6 The second deduction is equal to 37.5% of a domestic corporate taxpayer’s foreign derived intangible income (“FDII”).7 However, these deductions are only available to C corporations, as partnerships and S corporations, by their nature, pass the income to their respective partners and shareholders.

Maryland conformity to TCJA foreign provisions Pursuant to Maryland’s conformity to the IRC on a rolling basis, and the lack of any statutory provisions addressing the treatment of GILTI to date,8 the Comptroller decided to release guidance in the form of a tax alert addressing the mechanics of GILTI captured by Maryland on its state income tax returns in the following manner:

C Corporations The Comptroller’s guidance states that both GILTI and its accompanying IRC Sec. 250 deduction is included in Maryland taxable income for C corporations. The state does not allow a foreign tax credit for this type of income as applicable to C corporations.

GILTI amounts are included in federal adjusted gross income (line 28 of federal Form 1120, or line 25a of federal Form 1120-C), which is the starting point for Maryland Form 500. The IRC Sec. 250 deduction is considered a special deduction (reflected on line 29b of federal Form 1120 and line 26b of Form 1120-C), which is subtracted from federal taxable income on line 1c of Maryland Form 500.

Additionally, when computing the Maryland apportionment factor, the total amount of GILTI is included in the denominator. Since GILTI is considered income attributed to intangible property, the amount is also included in the numerator using the Maryland sourcing rule applicable to gross income from intangibles, by multiplying the gross income by the average of the Maryland property and payroll factors.9 According to the Comptroller’s guidance, if the consequent apportionment formula does not fairly represent the corporation’s Maryland activity, the Comptroller may modify the formula or its components. However, manufacturing corporations that use a single sales factor will not include GILTI in their apportionment formula.

S corporations, partnerships, limited liability companies, and business trusts The full GILTI amount is also included in Maryland taxable income for pass-through entities. However, pass-through entities may not claim the IRC Sec. 250 deduction. Again, the state does not allow a foreign tax credit for this type of income as applicable to pass-through entities.

The Maryland pass-through entity return begins with the total distributive or pro rata share of income on federal form 1065, 1065-B, or 1120S. Because GILTI is included in federal adjusted gross income, it flows through to the Maryland return.

Regardless of whether the pass-through entity uses the apportionment formula or separate accounting, Maryland taxable income must include GILTI. As with C corporations, the total amount of GILTI is included in the denominator when determining the Maryland apportionment factor, and GILTI is included in the numerator based on the rule applicable to gross income from intangibles, by multiplying the gross income by the average of the property and payroll factors. The Comptroller has the discretion to accept a reasonable method of allocating GILTI if the entity is eligible to apportion income using separate accounting.

Individual shareholders and fiduciaries No deductions or credits are applicable to individual shareholders or fiduciaries, resulting in the full amount of GILTI being subject to Maryland tax. Maryland Forms 502 and 504 start with federal adjusted taxable income, which includes GILTI. Nonresidents are not subject to tax on intangible income and so GILTI is excludible from Maryland income reported on Form 505.

Nonresident beneficiaries of resident fiduciaries are not taxed on income derived from intangible personal property. As GILTI relates to intangible property, it qualifies for the nonresident beneficiary subtraction to the extent it is held in trust.

Maryland apportionment factor For all types of taxpayers, the Comptroller reserves the right to adjust the apportionment formula if it does not fairly represent a corporation’s activities within Maryland. If a taxpayer believes the apportionment factor does not accurately represent income attributable to Maryland, a request for alternative apportionment must be submitted in writing with an alternative apportionment calculation and including a copy of the Maryland income tax return. While the request should be submitted at the time a return is filed, a taxpayer may submit a request subsequent to the return being filed for review by the Comptroller.

Commentary Taxpayers face significant challenges in determining how states are treating the new TCJA provisions for purposes of their income tax regimes. Therefore, the Comptroller’s administrative guidance on the treatment of GILTI based on Maryland’s general adoption of the TCJA is welcomed. While taxpayers now have some level of understanding as to how GILTI is treated in Maryland, the guidance does raise a number of tricky tax base and apportionment issues.

From a tax base perspective, by referring to the ability to allow the corresponding IRC Sec. 250 deduction from GILTI, the Comptroller’s guidance probably could have been clearer in stating that FDII (which is contained in section 250) should be an allowable deduction on Line 1c of the Maryland corporation income tax return in computing the Maryland tax base in addition to the GILTI deduction. Further, the Comptroller’s conclusion that GILTI is not a dividend for purposes of the corporation income tax, and therefore ineligible for the dividends received deduction, stands in contrast to the Comptroller’s treatment of IRC Sec. 965 repatriation income as stated in its own guidance released last fall. In that guidance, the Comptroller directed that the amount of Subpart F income included in a taxpayer’s gross income is to be excluded from Maryland adjusted gross income as “the Maryland subtraction modification for foreign dividends.”10 The conclusion that GILTI is not a dividend for corporation income tax purposes also contrasts with the policy in some of the states that conform to GILTI inclusions. For example, Massachusetts has amended the definition of net income to include GILTI which is treated as a dividend received. Eligible taxpayers in Massachusetts will therefore be able to subtract 95 percent of GILTI through the dividend received deduction.11

The sales factor apportionment approach being outlined in the Comptroller’s alert with respect to GILTI is somewhat confusing in several areas. For example, it is unclear as to whether the measure of GILTI in the sales factor should be gross GILTI, or net GILTI (gross GILTI less the GILTI, and presumably, FDII deductions). If the measure of GILTI in the denominator is gross because of the use of the word “total” in the Comptroller’s guidance, such amount would be substantially greater than the included amount of GILTI in the tax base following deduction of the IRC Section 250 deductions.

The special treatment of manufacturers also deserves attention. Presumably, the Comptroller’s guidance requiring manufacturing companies to exclude GILTI from the sales factor is consistent with the Comptroller’s regulatory policy requiring that manufacturing companies exclude intangible income from the sales factor.12 While this may make sense from the standpoint that a manufacturing company is required to use a single sales factor in Maryland13 and does not calculate property and payroll factors as would be necessary to source intangible income, it does highlight the very different results that could occur from an apportionment perspective because of a taxpayer’s industry classification.

Further, the guidance assumes that there will be some instances where alternative apportionment will be warranted, and highlights the likelihood that both taxpayers and the Comptroller will frequently pursue relief. This could be problematic for taxpayers given the state’s judicial authority strongly supporting the Comptroller in several recent alternative apportionment cases. Based on the use of the average of the property and payroll factors to source GILTI, multinational companies with substantial physical presence in Maryland (and are not Maryland manufacturers) could be disadvantaged in comparison to companies with less of a footprint in Maryland. Without some form of apportionment relief, this treatment could serve as a disincentive for multinational companies to expand their Maryland operations. Moreover, the effect of GILTI in the sales factor on the overall Maryland apportionment factor is likely to grow over time, as Maryland is currently transitioning from its traditional property, payroll and double-weighted sales factor formula to a single sales factor by 2021.14

Maryland’s treatment of GILTI as outlined by the Comptroller is distinctive from how Virginia, its neighbor, has addressed this provision. Historically, Virginia has excluded foreign source income in the calculation of state taxable income. In response to GILTI, Virginia amended its corporate tax law allowing taxpayers to fully deduct GILTI, so that there will be no tax base or apportionment effect from this provision.15

Finally, the distinctive manner in which Maryland conforms to the IRC leaves lingering questions about whether Maryland can conform to the inclusion of GILTI without legislation. As noted above, Maryland is a rolling conformity state, but with an important caveat. The state cannot automatically adopt amendments to the IRC if the Comptroller determines the change to federal adjusted gross income or federal taxable income will impact state tax revenue by $5 million or more.16 Changes with this level of potential impact ultimately require legislation rather than administrative action. The Comptroller is required to prepare a report detailing the impact of federal changes to state tax revenue as a means to determine whether the $5 million threshold is met.17

Given the substantial reach of the TCJA, the Comptroller issued two fiscal reports soon after enactment of the TCJA.18 The second report addressed changes for businesses, and with respect to international provisions, the report concluded that such changes were generally irrelevant to the Maryland corporation income tax as all amounts are subtracted from federal net taxable income in Maryland, though there could be an indeterminate apportionment impact. Overall, the report concluded that the revenue impact from international tax changes was “very uncertain.” Given the substantial tax effect of GILTI and developments since the enactment of the TCJA and the issuance of the Comptroller’s reports, query whether the analysis of the effects on Maryland tax revenue for purposes of the $5 million decoupling threshold should be revisited.


1 Maryland Tax Alert 04-19, Comptroller of Maryland (April 22, 2019).
2 Pub. Law No. 115-97. For a discussion of this Act, see GT Alert: Tax Reform Law Transforming Business and Tax Planning.
3 IRC § 965.
4 Id. at § 965(c). For a more detailed discussion, see GT Salt Alert: State Preliminary Assessment of IRS Section 965 Reporting Guidance.
5 IRC § 951A. GILTI is specifically defined as the excess (if any) of such shareholder’s net CFC tested income for such taxable year, over such shareholder’s net deemed tangible income return for such taxable year.
6 IRC § 250(a)(1)(B). The deduction amount drops to 37.5% for tax years beginning after 2025.
7 IRC § 250(a)(1)(A). FDII is broadly defined to include income received from the sale of property for foreign use or services rendered to persons outside of the United States. See IRC § 250(b).
8 In 2018, the Maryland legislature adopted several provisions addressing TCJA conformity without addressing GILTI. See Ch. 577 (S.B. 318), Laws 2018; Ch. 575 (S.B. 184), Laws 2018; Ch. 611 (S.B. 647) and Ch. 612 (H.B. 856), Laws 2018.
9 MD. REGS. CODE tit. 03, §
10 MD. CODE ANN., TAX. GEN. § 10-307(d).
11 MASS. GEN. LAWS ch. 63, § 30.4.
12 See MD. REGS. CODE tit. 03, §
13 MD. CODE ANN., TAX. GEN. § 10-402(d)(1).
14 MD. CODE ANN., TAX. GEN. § 10-402(d)(2). Query whether the sourcing rule for intangibles requiring the use of the property and payroll factors will remain once the state moves to a single sales factor for determining overall apportionment.
15 VA. CODE ANN. § 58.1-402.C.7; Tax Bulletin 19-1, Virginia Department of Taxation, Feb. 15, 2019.
16 MD. CODE ANN., TAX. GEN. § 10-108(a), (c).
17 MD. CODE ANN., TAX. GEN. § 10-108(b).
18 The two reports can be accessed at:;

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