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Wednesday, May 15, 2013

Incentives Watch: With Data Breaches on the Rise, Maryland Offers Tax Credit for Investing in Cybersecurity Industry

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Security breaches are becoming more pervasive. According to the Privacy Rights Clearinghouse, there have been 3,740 public data breaches since 2005, which has resulted in 607,799,215 breached records. In fact, 73 percent of Americans have been victims of a cyber crime, the Firmex blog reports.

Due to the increase in cyber crimes, cybersecurity is becoming a growing industry. Maryland recently enacted a tax credit specifically designed to make the state a center of innovation for the cybersecurity industry. The credit equals 33 percent of an investment (not to exceed $250,000) in a small cybersecurity company in the state.

Ursula Powidzki, Assistant Secretary for Business and Enterprise Development under the Maryland Department of Business and Economic Development, answered some questions recently regarding the state’s new cybersecurity tax credit. The department is responsible for administering the program. Below is what she had to say about the credit, which is available starting Jan. 1, 2014.

Bloomberg BNA: How did the cybersecurity investment tax credit come about?

Powidzki: Our agency [the Maryland Department of Business and Economic Development] and Governor O’Malley’s administration wanted to pursue meaningful legislation at the State level that would encourage the growth of early stage cybersecurity companies, particularly those developing products for both the commercial and Federal marketplace. The objective is to continue diversifying the rich cybersecurity industry we enjoy in the State. We conferred with our cyber advisory group (the members represent a broad swath of the industry in the State), with investors and advisors, and concluded that the tax credit was both politically and financially viable and effective. It is generally modeled on an investment tax credit targeted to the life sciences sector (though has some differences).

Bloomberg BNA: What kind of impact will the tax credit have on the cybersecurity industry in Maryland?

Powidzki: There will be both tangible and less tangible effects. The tangible: refundable tax credits made available to companies that are closing on investments with outside capital, fueling their growth. Growth translates into increased revenue, employment and visibility. The funding level for this year is $2 m[illion], and will likely serve about a dozen companies (could be slightly fewer or more). The less tangible but no less significant impact: the marketing value of attracting both entrepreneurs and investors who are active in cybersecurity.

Bloomberg BNA: Who will benefit from the tax credit?

Powidzki: The companies choosing to grow their business in Maryland receive the most direct benefit. Indirect benefits will be felt in the IT/cybersecurity labor market in Maryland, support services (legal, advisory, financial) and the investor community.

In other developments . . .

The Louisiana Department of Economic Development issued final regulations amending the digital media and software tax credit by making it refundable and adding limitations on certain expenditures, according to a Bloomberg BNA Weekly State Tax Report article

By:  Kathleen Caggiano

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