California Competes Tax Credit: Opportunity for Relocating or Growing Businesses

The California Competes Tax Credit (CCTC) is a negotiated tax credit between the taxpayer and the Governor’s Office of Business and Economic Development (GO-Biz). Businesses intending to relocate to California, or to stay and grow in California, may request up to $45 million in a non-refundable income tax credit. The application for fiscal year 2014/2015 is open now through October 27, 2014.

Summary

CCTC is a negotiated income tax credit with GO-Biz that is subject to California Competes Tax Credit Committee approval. California Competes Tax Credit may be carried forward to each of the succeeding five years, but may not be used to reduce tax below the tentative minimum tax. The credit is subject to recapture if terms and conditions of the negotiated agreement are not met. Although it is a non-refundable tax credit, it can be assigned to a unitary taxpayer corporation in the combined reporting group. Special attention is given to small businesses with growth receipts of less than $2 million, and 25% of the total credit amount is each fiscal year is allocated to small businesses.

The application period for this CCTC is open from September 29, 2014, and will end on October 27, 2014. For the fiscal year 2014/15, GO-Biz has allocated $150 million of CCTC to be awarded during the following three application periods:

• Period I: $45 million (9/29/14 – 10/27/2014)
• Period II: $75 million (1/5/2015 – 2/2/2015)
• Period III: $30 million (3/9/2015 – 4/6/2015)

Applications will be reviewed in a two-phase process which will take approximately 90 days. Each phase of the process is summarized below.

Phase one is a quantitative cost-benefit ratio analysis. Cost-benefit ratio is a fraction of the amount of the credit requested over the total investment proposed benefit (aggregate new employee compensation and aggregate new investment) the company is to provide over the next five years. The aggregate investment package takes into consideration the “investment” in real and personal property purchased related to the applicant’s business in California. Applications that produce the highest return on CCTC investment move to phase two.

Phase two is a negotiation phase with Go-Biz in which a variety of qualitative factors are considered. Key factors to be considered are: job creation and retention, economic impact to California, incentives available in other states, opportunity for future growth and expansion, compensation paid to employees, amount of investment, strategic importance, and the extent the benefit to the state exceeds the amount of the tax credit.

All CCTC awards will be made publicly available upon approval.

What is the impact of this decision?

Taxpayers considering either expansion of existing California business or relocation to the state may wish to consider applying for the CCTC. If you have questions about this CCTC and how it may apply to your clients or business, contact us.