Could you capture a California Competes Tax Credit?
Every California business plays a role in the success of the state's economy. But if yours is a "high-value" business, you could qualify for a California Competes Tax Credit. The Governor's Office of Business and Economic Development (GO-Biz) has awarded $223 million to 330 companies since the program began in fiscal year 2013-2014.
The California Competes Tax Credit is an income tax credit that's available to businesses that want to come to California or stay in California and grow. Any business can apply, and 25 percent of the available credits are reserved for small businesses. (Small businesses are defined as those with gross receipts of less than $2 million in the business's prior tax year). The tax credit's purpose is to attract and retain high-value employers in California in industries with high economic multipliers and that provide their employees good wages and benefits.
GO-Biz negotiates tax credit agreements
GO-Biz evaluates applications for the credit based on factors including total jobs created, total investment, average wage, economic impact, strategic importance and more. The evaluation takes place in two phases:
- Phase I is a quantitative analysis of the credit amount requested compared to your hiring and investment commitments.
- Phase II considers a variety of qualitative factors, including local unemployment and poverty, competing incentives, economic impact and industry outlook.
Successful companies are exempted from paying state income taxes in the amount awarded. The credit is nonrefundable, but if the credit exceeds the amount of tax due, the excess may be carried over to future tax years (limit of six years). This fiscal year, GO-Biz is awarding $200 million in tax credits, and the same amount will be awarded in fiscal years 2016-2017 and 2017-2018.
Specifically, the amount of the credit is based on:
- The number of jobs you will create or retain in California.
- The compensation paid or proposed to be paid to your employees, including wages, benefits and fringe benefits.
- The amount of your investment in this state.
- The extent of unemployment or poverty where you're located.
- The incentives available to your business in this state, including incentives from the state, local government and other entities.
- The incentives available to you in other states.
- The duration of your proposed project and the length of time you commit to remain in California.
- The overall economic impact in California of your project or business.
- The strategic importance of your business to the state, region or locality.
- The opportunity for future growth and expansion in California by your business.
- The extent to which the anticipated benefit to the state exceeds the projected benefit to your business from the tax credit.
If your business pays good wages and benefits and is planning to hire, it may be worth your while to see whether the Golden State will give you a boost with the California Competes Tax Credit. For help with other financial matters, rely on the expertise of your banker at California Bank & Trust.