The California Competes Tax Credit is a business income tax credit intended to incentivize economic development in the State of California. If your business (whether organized as a corporation, limited liability company or partnership) is planning to hire and/or expand in California, please consider applying for the California Competes Tax Credit.
The credit is awarded through a competitive application process and is individually negotiated with the Governor’s Office of Business and Economic Development (“GO-Biz”) for approval by a statutorily created California Competes Tax Credit Committee. The credit is taken against income tax due to the California Franchise Tax Board.
Although not yet officially announced, we anticipate that GO-Biz will open the next application period in late September (prior application periods have typically lasted around one month). GO-Biz previously indicated that approximately $200 Million is available to be awarded in fiscal year 2015-16.
The evaluation process consists of two phases (though it is possible to bypass Phase 1 under certain circumstances). Phase 1 is an automated process in which the requested tax credit, aggregate employee compensation and aggregate investment are evaluated to arrive at a cost-benefit ratio. Those applications with the “most advantageous” cost-benefit ratio proceed to Phase II.
Phase II of the evaluation process focuses on several factors, including the number of jobs created, compensation paid to employees, amount of investment, geography and overall impact to the State of California.
Successful applicants enter into a tax credit agreement to provide for allocations of the credit to be made upon the successful completion of established milestones (e.g., hiring, investment targets). Awardees who fail to achieve the established milestones are at risk of having the credit recaptured.
Online applications will likely be submitted at https://www.calcompetes.ca.gov. If unsuccessful, applicants may reapply in subsequent application periods.
If you have questions about the California Competes Tax Credit or for help applying, please contact Daren Shaver at Carle, Mackie, Power & Ross LLP. (tel: 707-526-4200; e-mail: email@example.com.)