California Competes Tax Credit – Bowling For Tax Dollars?
We discussed the California Sales Tax Exemption and its mechanics, which were included in Assembly Bill 93 (AB 93), in our August 2014 article. The purpose of this article is to discuss the California Competes Tax Credit (“CCTC”) and provide you with enough information to be dangerous!
In June of 2013, the California State Assembly approved amendments to AB 93 which made sweeping changes to certain California tax incentives. Governor Brown signed this bill in July of 2013. What is certain from AB 93 is the termination of the Enterprise Zone credit program but what is next is somewhat uncharted territory.
The California Competes Tax Credit is an income tax credit available to businesses that want to come to California or stay and grow in California. Tax credit agreements will be negotiated by the 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, one appointee each by the Speaker of the Assembly and Senate Committee on Rules …
This is a credit that was designed to attract and retain “high-value” employers in California. The most interesting concept of CCTC is the fact that it is negotiable, meaning you need to make your best case for a credit and California will evaluate the merits of your proposal and what the economic impact of your entity is to the state of California. This is the first time such a negotiable credit has occurred in California.
We know what you’re saying, what is in it for me, how much can I get?
Here are the financial metrics:
1. In 2014-2015, the tentative amount of credits that can be allocated is approximately $150 million;
2. In each fiscal year thereafter, through 2017-2018, the tentative amount of credits that can be allocated is approximately $200 million per fiscal year.
So is it worth it? We would argue that is definitely something to carefully consider.
The process from start to finish is done via a series of phases. Per the FAQ referenced below, it mentions that the application process to award phase takes approximately 90 days which includes the review process. The writer of this article finds this “90 day” projection as a “glass half full” assessment as it takes a prolonged period of time to correspond with the Franchise Tax Board over even the simplest of issues.
In a perfect world, assuming that you went from start to finish and were approved for the CCTC, the application of the credit on your tax return would reduce your regular tax down to your tentative minimum tax. Any unused credits can be carried forward for a period of five years.
Because of the utilization aspects of the credit, we recommend a careful analysis to see what the true benefits of the CCTC actually are. This credit is not for the faint of heart because it will take some manpower to document and present your facts adequately. Your White Nelson Diehl Evans tax professional can help you vet and investigate the benefits of this credit.
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