03.04.07.02

.02 Imposition and Computation of Tax.

A. Imposition of Tax. A tax is imposed on a pass-through entity that has:

(1) A nonresident member; and

(2) Nonresident taxable income for the taxable year.

B. Allocation of Income for a Multistate Pass-Through Entity.

(1) A multistate pass-through entity that is a partnership (including a limited liability company taxed as a partnership and a business trust taxed as a partnership) shall allocate income to this State using:

(a) The apportionment formula for corporations under COMAR 03.04.03.08 A—E; or

(b) Separate accounting.

(2) A multistate pass-through entity that is an S corporation shall allocate income to this State using:

(a) The apportionment formula for corporations under COMAR 03.04.03.08 A—E; or

(b) Separate accounting, but this method is only allowable if the business activity of the S corporation within this State is not unitary.

C. Amount of Tax.

(1) If the pass-through entity has one or more nonresident members that are individuals, the amount of tax is the sum of:

(a) The nonresident taxable income of the nonresident members that are individuals, multiplied by the lowest rate of income tax for an individual under Tax-General Article, §10-106.1, Annotated Code of Maryland; and

(b) The nonresident taxable income of the nonresident members that are individuals, multiplied by the top marginal State tax rate for an individual under Tax-General Article, §10-105(a), Annotated Code of Maryland.

(2) If the pass-through entity has one or more nonresident entity members, the amount of tax is computed by applying the rate of tax for a corporation under Tax-General Article, §10-105(b), Annotated Code of Maryland, to the nonresident taxable income of the nonresident entity members.

(3) If the pass-through entity has a nonresident member that is an individual and a nonresident entity member, then the amounts as computed in §C(1) and (2) of this regulation shall be summed to arrive at the amount of tax.

D. Limitation on Tax Imposed. The tax imposed on a pass-through entity is the lesser of the:

(1) Amount of tax imposed as computed under §C of this regulation; or

(2) Sum of the shares of all the nonresident members in the pass-through entity's distributable cash flow.

E. Special: Certain Members.

(1) A member that is itself a pass-through entity, which is not a nonresident entity member, shall comply with the provisions of this regulation with respect to any of its nonresident members.

(2) A pass-through entity that has a nonresident member that is exempt from income tax under Tax-General Article, §10-104(2), Annotated Code of Maryland, is exempt from complying with the provisions of this regulation with respect to that nonresident member.