CA Governor’s Office of Business and Economic Development reminds businesses about upcoming August 21st deadline for applications for California Competes Tax Credit.
The California Competes Tax Credit is an income tax credit available to businesses who want to come, stay, or grow in California.
Tax credit agreements are negotiated by Governor’s Office of Business and Economic Development (GO-Biz) and approved by a statutorily created “California Competes Tax Credit Committee,” consisting of the State Treasurer, the Director of the Department of Finance, the Director of GO-Biz, and one appointee each by the Speaker of the Assembly and Senate Committee on Rules.
Who may apply and what is the benefit?
A company of any size and from any industry can apply. This is the income tax credit which is non-refundable but has a 6-year carryover period. Thus, if the company expects to make profit in CA, this credit may increase its cash flow when claimed against its tax liability.
Amount of credit made available by California
Over $230 million has been allocated for CA Competes credit in fiscal year 2017/18.
No more than 20% may go to any one applicant per fiscal year. 25% of total amount each fiscal year is reserved for small businesses (defined as having more than zero but less than $2 million gross receipts). According to GO-Biz representatives, competition among small businesses is smaller; thus, it may make it a little easier for them to qualify for the credit.
Amount of credit which can be requested
An applicant is the one who initially determines how much credit to request. The minimum credit is $20K and the maximum is $40 million. Consideration should be given to correlation of credit and number of employees expected to be hired within the next five years and amount of investment required for the business. Thus, for example, a consulting business which expects to hire three people and to invest $100,000 in the business should not be requesting a $500,000 credit.
The amount of the requested credit is subject to review and approval by GO-Biz as part of the application process.
Online applications are to be submitted at https://www.calcompetes.ca.gov.
The Director of GO-Biz sets the application periods each fiscal year:
Fiscal Year 2017-2018
July 24, 2017 – August 21, 2017
$75 million available
January 2, 2018 – January 22, 2018
$100 million available
March 5, 2018 – March 26, 2018
$55.4 million available
You can find a useful application guide at http://www.business.ca.gov/Portals/0/Files/CCTCApplicationGuide.pdf?ver=2017-01-20-084059-450
Application instructions, FAQs, and other technical assistance documents are available at www.business.ca.gov/CalCompetes.aspx
Important: Unsuccessful applicants may resubmit applications after updating the Employees and Investment sections and Current Tax Year.
Factors reviewed in the application process
Credit awards are based on 11 factors:
1. Number of jobs created or retained
2. Compensation paid to employees
3. Amount of investment
4. Duration of proposed project and commitment to remain in this state
5. Extent of unemployment or poverty in business area
6. Extent the benefit to the state exceeds the amount of the tax credit
7. Incentives available in other states
8. Opportunity for future growth and expansion
9. Other incentives available in California
10. Overall economic impact
11. Strategic importance to the state, region, or locality
Application process stages
There are four stages in the application process:
Phase I: Quantitative analysis and cost-benefit ratio
Phase II: Comprehensive evaluation based on eight additional factors and the Phase I ratio calculation
Agreements: Must be approved by the California Competes Tax Credit Committee. Terms and conditions of the agreements include:
• Minimum employee compensation and retention period
• Credit distribution period
• Recapture provisions if applicant fails to meet commitments
Post Committee Approval: This stage includes implementation consisting of information posting, required reporting and agreement compliance.
Cost benefit ratio reviewed in Phase I of the application process is as follows:
Amount of credit requested/(Aggregate employee compensation + Aggregate investment)
The smaller the ratio the higher the chance of advancing to Phase II. GO-Biz publishes average ratios from the past application processes for reference.
GO-Biz may move an application to Phase II, regardless of the ratio if the applicant certifies (i.e. via signed affidavit) that:
a. absent award of the credit, the applicant’s project may/will occur in another state, or the applicant may/will terminate or relocate all or a portion of its employees to another state, or
b. at least 75% of the applicant’s net increase of full-time employees work at least 75% of the time in an area of high unemployment or high poverty
a. Payroll records for full-time employees employed by the applicant in its prior tax year
b. 5 year business plan, including:
• Projected number of new full-time employees, their job classifications, and wages
• Projected amount of new investment
In order to claim full credit, all milestones for the upcoming five years must be met but there is flexibility as to how fast they are met within this period. Credit is phased out if subsequent milestones are not met.