California Competes Tax Credits history
Over the past four years, GO-Biz has awarded over $620 million in California Competes Tax Credits, a tax credit that may be used to offset the awardee's California income and franchise tax liabilities, including the alternative minimum tax (AMT). The California Competes Tax Credits awarded have been as large as $15 million and used by GO-Biz to attract and retain businesses considering a significant new or continued investment in California.
The California Competes Tax Credits program was created in 2013 as part of three new economic development programs that replaced California's Enterprise Zone program. Under current law, GO-Biz may only make new California Competes Tax Credit awards through fiscal year 2017–2018. But the Governor's 2018–2019 budget proposal extends the program for another five years and, among other changes, modifies it by reducing the annual allowance from $200 million to $180 million.
How do I apply for California Competes Tax Credits?
California Competes Tax Credits are awarded through a formal application process administered by GO-Biz. Applications are generally accepted during three specified application periods each fiscal year, when applicants must first request a specific amount of tax credits and provide detailed projections about the next five years.
GO-Biz reviews and evaluates the applications over a 90-day period in two phases. During the first evaluation phase, applications are reviewed, scored, and ranked based on the quantitative and qualitative information provided. Applicants with the highest scores then move on to the second evaluation phase.
During the second evaluation phase, GO-Biz considers numerous factors, including projected new hires, employee benefits provided to the new hires, investment in new equipment, duration of project and commitment to remain in state, pervasiveness of unemployment or poverty in the investment area, opportunity for future growth and expansion for the applicant in the state, and the expected benefit to the state in excess of the benefit to the applicant.
GO-Biz then negotiates with the highest scoring applicants, on an individual basis, the terms of the five-year tax credit agreements, including the amount of the tax credits to be awarded, as well as the annual hiring, retention, and investment milestones required by the applicant to qualify for the tax credits. The California Competes Tax Credit Committee then reviews and decides whether to approve the agreements negotiated by GO-Biz.
When do I need to apply?
The most recent application period ended March 26, 2018, and the new application periods for the 2018–2019 fiscal year have not yet been announced. Based on the Governor's proposal to extend the program and the application period dates in prior fiscal years, we expect the next application period to take place during the end of July 2018 through August 2018.
Takeaway
The California Competes Tax Credit application process consists of multiple steps, and includes both a quantitative component and a qualitative component. As noted above, some of the credit awards have been substantial. But given the upcoming reduction (or potential termination if the Governor's proposal is not made into law) of the program, submitting an application with the correct amount of requested credits and making a strong case for the award is more important than ever.
Contact the authors of this alert to discuss the eligibility requirements and the application process for the 2018–2019 fiscal year.
The Reed Smith State Tax Team has lawyers based in Los Angeles and San Francisco who are focused exclusively on California state tax matters. The Reed Smith team handles California tax matters of all types, from audit defense to appeals and litigation.
This article is presented for informational purposes only and is not intended to constitute legal advice.
