For many Maryland businesses, big and small, April consistently brings with it the requirement to file Form 1 – Annual Report and Personal Property Return.
Filing this return is necessary for business entities in the state to maintain good standing with the Maryland State Department of Assessment and Taxation (SDAT).
Without good standing, a business may lose its name, its limited liability protections under Maryland law, its ability to sue and even its ability to continue to do business in the state. It can also cause technical defaults in loan documents (many of which require the entity to remain in good standing throughout the life of the loan) and can render an entity unable to transfer property.
Despite the potentially harsh consequences associated with not filing, year after year not filing the return continues to be the main reason that most entities lose their good standing.
The purpose of filing the return is to account for any personal property that an entity may own and use in order to conduct business during a given tax year. The state then assesses a tax based upon the personal property that is reported.
A practical problem with requiring all entities to file the return is that the majority of Maryland entities do not have personal property to report; for that reason, many business owners allow the return to fall to the wayside and simply do not file.
As of December 2017, SDAT reported that an estimated 200,000 business entities throughout Maryland did not actually own any personal property. As more businesses continue to maximize depreciation deductions and take advantage of home and virtual offices, this number is expected to increase.
Filing the Form 1, however, is not optional, and not filing for any reason can cause big problems for any business.
Losing good standing does not necessarily mean the demise of a business. Due to the commonality of the problem, the state does have remedial options available for a business looking to revive its good standing — especially in a hurry.
For any entity looking to reinstate its good standing, it is important for the business to contact SDAT to discern how many years behind the entity may be in filing the Form 1. The business should then immediately file returns for all missed years, pay the filing fees (and late fees), as well as any tax due. If the charter has been declared forfeited, however, the additional step of filing articles of revival will be needed.
To help business owners, the SDAT website provides Form 1 returns dating back five years from the current tax year to provide for easy accessibility. Furthermore, SDAT strongly encourages taxpayers to take advantage of their online filing platform, which is available through Maryland Business Express, in order to file past returns quickly and easily.
In January 2018, the current Form 1 was separated into an Annual Report and a Personal Property Tax Return. For the majority of Maryland entities that do not have personal property to report, they will no longer be required to complete the personal property section.
While the two-page Annual Report continues to be mandatory, directions within the document provide guidance to business owners regarding whether or not it is necessary for them to also attach a Personal Property Tax Return.
The SDAT hopes that simplifying the filing process and reducing the amount of paperwork to be completed by most Maryland business owners will encourage more taxpayers to oblige by the filing requirement.
A new Personal Property Tax Return will need to be included with the Annual Report if the business owns, leases or uses personal property located in Maryland; or if the business maintains a trader’s license with a local unit of government in Maryland.
Although the form has been revised and streamlined, the methods for filing have not changed. The simplest and easiest method is via the SDAT online platform available through Maryland Business Express.
If a business should anticipate needing an extension, it is strongly encouraged that an extension request be filed through the SDAT website before April 16, 2018. Beginning in 2018, extension requests will only be accepted if submitted online. Once an extension is received and approved, the necessary Annual Report and possible Personal Property Tax Return must be filed no later than June 15, 2018.
Jessica Gorsky is an associate attorney and Sarah Dye is a partner at Carney, Kelehan, Bresler, Bennett & Scherr, in Columbia. Gorsky can be contacted at [email protected] and Dye can be contacted at [email protected].