California Competes Application Periods Announced for FY 2021-2022
The California Competes Tax Credit has been extended and is available for all taxable years that begin on or after January 1, 2014, and before January 1, 2030. The credit is available to businesses that wish to locate or remain in California and is granted based on an application. The amount of available credit for each fiscal year is capped at a specific amount, which makes the application process very competitive. For the 2021-2022 fiscal year, the available credit is capped at $394.7 million.
The application due dates for the 2021-2022 period are as follows:
- July 26, 2021 – August 16, 2021 ($150 million in credits available)
- January 3, 2022 through January 24, 2022 ($140 million available)
- March 7, 2022, through March 28, 2022 ($104.7 million plus any remaining unallocated amounts from previous periods)
To begin the process, taxpayers must submit an online application with the Governor of California’s Office of Business and Economic Development, commonly referred to as GO-Biz. Applications are accepted only during the specified application periods.
Once an application is submitted, a two-step evaluation process commences. The first step includes an analysis of the amount of credit requested relative to the taxpayer’s proposed employment and project investment. The top- ranking applications (i.e., those with the best ratios) progress to the second step, which considers the taxpayer’s plans for the following:
- Creating and retaining jobs;
- Compensation to be paid, including wages and fringe benefits;
- Duration of the proposed project;
- Opportunity for future growth;
- Training opportunities offered by applicant to its employees; and
- The extent to which the credit will influence the taxpayer’s ability, willingness or both to create jobs in California that might not otherwise be created in the state by the applicant.
When the evaluation process is complete, selected taxpayers will be given the opportunity to negotiate the terms and conditions of a credit contract. This tax credit agreement, which expressly defines the taxpayer’s commitment to certain employment or project investment requirements, referred to as “milestones,” is negotiated between the taxpayer and GO-Biz and must be approved by the California Competes Tax Credit Committee, which meets only during certain periods. For the 2020-21 fiscal year, the Committee will meet on November 4, 2021, April 21, 2022 and June 16, 2022.
Once approved, if the taxpayer meets its milestones for a taxable year as specified in the credit agreement, then the credit for that year is earned and may be claimed on the taxpayer’s return. If the milestones for a taxable year are not met, the credit is not earned for that taxable year.
Who Is Eligible
Any business may apply for the credit (i.e., there are no industry or size restrictions). Further, to help ensure that credits are available to more taxpayers, no more than 20% of the total available credits may be granted to a single taxpayer.
Finally, it is worth noting that taxpayers should be encouraged to apply even if it appears that they be unable to utilize 100% of the credit granted for a particular year. Although the credit is nonrefundable, it may be carried forward up to six years.
Any taxpayer looking to expand via headcount or capital expenditures in California or if receiving the credit will prevent layoffs or relocation from California should consider applying.
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