Cybersecurity tax credit part of Montgomery County’s effort to become industry hub

October 27, 2013

Cybersecurity companies in Montgomery County will be eligible for tax credits starting next year as part of the county’s mission to become a national hub for companies that sell cybersecurity products to the private sector.

The Washington region is emerging as a hotbed for the cybersecurity industry, in part because of its proximity to federal agencies, the military and government contractors.

But Montgomery County officials see a niche in courting companies that plan to sell their products to private companies, such as banks or health care providers, rather than buyers in the defense and intelligence sectors.

The Cybersecurity Investment Incentive Tax Credit Supplement Program will offer tax credits to companies located in Montgomery County that have already attracted money from investors and qualify for an identical state tax credit. The exact amount of available funds will be determined next March.

The new credit comes as Montgomery County is set to become home to the recently created National Cybersecurity Center of Excellence, a joint effort with the National Institute of Standards and Technology aimed at devising solutions to pressing cybersecurity concerns.

The tax credit program is modeled in part off of a similar tax credit enacted in 2010 for biotechnology companies. Unlike the cybersecurity program, however, the biotech tax credit is awarded to the investors rather than the life sciences firms they support.

County Executive Isiah Leggett (D) has allotted $500,000 for the biotech tax credit each of the past two years.

Life sciences companies claim the tax credits have spurred investments from venture capitalists and other financiers, said Steve Silverman, Montgomery County’s economic development director, though figures are hard to track because investments vary year to year.

Earlier this year, the county also established a $500,000 fund to provide tax credits to investors that bankroll green tech companies.

“The reason why we’re doing this is these areas are the areas of focus for Montgomery County in terms of job creation and company building,” Silverman said. “This is the innovation economy.”

Silverman said tax credit programs that require a company to attract money from private investors allows the county to encourage those investments without determining for itself which firms hold the most promise.

“Rather than go the route of an economic development fund grant, which would be discretionary and tied into job growth, what we’re basically saying is we think there’s an opportunity to support the early stage private sector investment,” Silverman said.

The Tech Council of Maryland, a trade group for the state’s bioscience and high-tech sectors, advocated for the county cybersecurity tax credit and a similar statewide program that the General Assembly passed this year.

“The government is going to pump that money right back into the company so it gives them and their investors money and protection,” chief executive Philip Schiff said. “It makes them much more comfortable to start up in Maryland.”

“From our perspective we’ll be working very hard to make companies here make use of it and make sure companies outside of Maryland understand the value of it,” he said.

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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