California Competes Tax Credit Program Extended and Application Periods Announced

The information in BDO alerts is dependent on tax policies at the time they are published. The subject matter of this alert has since been updated. To find the latest information on this topic, read California Competes Credit Application Periods Announced for FY 2019-2020.

Summary

On June 27, 2018, S.B. 855 was enacted, which revises the California Competes Tax Credit program.  Among other revisions, the program was extended to tax years beginning prior to January 1, 2030 (previously, tax years beginning prior to January 1, 2025).  The application periods for the California Competes Tax Credit also have been announced.
 

Details

Background

The California Competes Tax Credit has been extended and is available for all tax years that begin on or after January 1, 2014, and before January 1, 2030.  The amount of available credit for each California fiscal year is capped at an aggregate maximum amount, which makes the application process very competitive.  For the California 2018-2019 fiscal year, the available credit is capped at $180 million, and the application periods have been established as follows:

• July 30, 2018, through August 20, 2018 ($70 million in credits available)
• January 2, 2019, through January 21, 2019 (amount available to be determined)
• March 4, 2019, through March 26, 2019 (amount available to be determined)

While $70 million in credits have been announced as available with respect to the July 30 – August 20, 2018 application period, amounts of the remaining $110 million of California Competes Tax Credits available for the January and March 2019 application periods have not yet been announced.
 

How it Works

To start the application 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 application periods set forth above. 

Once submitted, a two-step evaluation process begins.  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) are moved forward to the second step of the process, which considers the taxpayer’s plans for creating and retaining jobs; compensation to be paid, including wages, benefits, and fringe benefits; the duration of the proposed project; the opportunity for future growth; and other considerations.  Training opportunities offered by the applicant to 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 are additional considerations.

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.  After the applicant and GO-Biz agree to a tax credit agreement, it must be approved by the California Competes Tax Credit Committee.  For the 2018-2019 fiscal year, the Committee meets on the following schedule:

• November 13, 2018
• April 11, 2019
• June 13, 2019

Once approved by the California Competes Tax Credit Committee, if the taxpayer meets its milestones for a taxable year as specified in the tax credit agreement, then the credit for that year is earned and may be claimed on its California tax 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 (i.e., there are no industry or size restrictions).  Further, to help ensure that credits are available to more taxpayers, no more than 20 percent of the total available credits may be granted to a single taxpayer.
 

BDO Insights

• Eligible California taxpayers should apply even if they may be unable to utilize 100 percent of the credits granted to them for any particular tax year.  Although the credit is nonrefundable, it may be carried forward for up to six years.
• Any business considering an expansion in California headcount or increase in capital investment in California should apply.
• Likewise, any business that believes receiving the credit will prevent layoffs or a relocation from California should also consider applying.