California Competes Tax Credit (“Cal Competes”): This discretionary program has been re-authorized through fiscal year 2022-2023 and makes available an annual total of $180 million of corporate income tax credits to businesses that create new jobs and make capital investments. The credits apply only to income tax owed to the Franchise Tax Board. The credits are non-refundable and non-transferrable; they are available for five years but may be carried forward for up to 6 additional years.
Cal Competes tax credits are awarded via a three-phase competitive application process administered by GO-Biz, (the Governor’s Office of Business and Economic Development). Companies are permitted to apply during designated application periods held three times a year. Each application is evaluated based on 11 different criteria. Those businesses that can demonstrate a project will provide an attractive cost-benefit ratio to the state (defined as the amount of credit requested divided by employee compensation and capital investment over a five-year period) and also are able to justify why the tax credits are necessary for a project to relocate to, or expand in, California are most likely to be approved for incentives. Projects that provide a less attractive cost-benefit ratio may still be considered for tax credits in the following scenarios: existing jobs are at risk of being eliminated or relocated out of California; California is competing against another state for a new or expanded business operation; at least 75% of the new positions to be created in California will be located in an area of high unemployment or high poverty. Program restrictions limit the amount of tax credits claimed by any single business to no more than 20% of all credits awarded during a fiscal year. The minimum award is $20,000 and the maximum is $20 million.
March 25, 2019 marked the deadline to apply for the final round of Cal Competes credits in fiscal year 2018 - 2019. In FY 2019 – 2020 the Cal Competes program is expected to again take applications and award tax credits via three competitive funding rounds, most likely adhering to the established July / January / March timeframes. As the program is always over-subscribed, it’s generally advised to apply during one of the earlier funding rounds if possible.
New Employment Credit (NEC): This program is available to businesses that create net new jobs with hourly wages between 1.5 and 3.5 times the state minimum wage. Businesses must be located in a Designated Geographic Area (DGA). A DGA includes census tracts with the state’s highest poverty and unemployment rates, former Enterprise Zones (low poverty zones are ineligible) and former Local Agency Military Base Recovery Areas (LAMBRAs). Businesses that locate in PILOT areas (select locations within the DGA certified by the State) are subject to a lower wage threshold to qualify for the program. The value of the New Employment Credit is determined by multiplying the qualified wages for all eligible employees by 35. The maximum credit is $56,000 per employee over 5 years. To receive the tax credit, businesses must hire employees that meet the following criteria:
Tax credits are non-transferable and non-refundable. Unused credits may be carried forward for 5 years or until the credit is exhausted, whichever occurs first.
California Research and Development Tax Credit: This incentives provides a non-refundable tax credit of 15% against corporate income or franchise tax liability for qualified in-house research expenses and a 24% credit for basic research payments to outside organizations. An alternative incremental rate may be selected, as well. Unused credits can be carried forward until none remain, and may also be assigned to an affiliated corporation.
Sales Tax Rebate: Local jurisdictions in California are empowered to rebate up to 30% of the local portion of the state Sales and Use Tax (typically one percentage point) for businesses whose goods or services are subject to sales tax and where the point of sale is within the local jurisdiction.
Manufacturing and R&D Partial Sales and Use Tax Exemption: All manufacturers and businesses primarily engaged in R&D related to the physical sciences, engineering, and life sciences industries are eligible for a partial exemption in state sales and use tax (3.9375%). The partial exemption only applies to the state’s portion of the sales tax rate (7.25%) – businesses are still subject to local sales tax. California caps the value of equipment that a business may exempt from state sales tax at $200 million per year. As this is a statutory benefit there is no need to apply for the exemption. Companies making qualifying purchases or leases must only provide their vendor with a timely partial exemption certificate to obtain the reduced tax rate.
CAEATFA Sales and Use Tax Exclusion: The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides a full exclusion of the state’s 7.25% sales and use tax, as well as any additional local jurisdictional tax, for manufacturers of alternative energy sources, advanced transportation products components or systems, and projects using recycled feedstock. Applicants must submit an application to the CAEATFA documenting equipment purchases and other taxable components for processing and/or facility construction and respond to other questions or requests for documentation to determine conformance with the “advance manufacturing” criteria. Applications may be submitted monthly and are heard by panel two months following applications submittal.
Ad Valorem Tax Abatements: Property tax abatements are rarely offered in CA as property tax is just 1% of building value at inception. What property tax abatements are offered are available at the local level.
California has several agencies that offer direct grants to companies. These grants are typically application- based and are intended to reduce greenhouse gases or to divert waste from landfills.
California Food Production Investment Program: The California Energy Commission will again offer grants to the state’s food and beverage companies to reduce greenhouse gas emissions. Funding will be awarded through a competitive grant application process (applications anticipated to be available after July 1, 2019 for FY 2019-2020). Grant funds will be available for commercially-available energy efficient equipment (e.g., boilers) covering as much as 65% of the purchase cost. For cutting edge technologies grant awards could reach 85% of equipment costs.
Renewable Energy for Agriculture Program (REAP): In 2018 The California Energy Commission implemented a new Renewable Energy for Agriculture Program (REAP) which will fund emissions-eliminating manufacturing and processing projects. Approximately $10 million is available for renewable energy technologies that are capable of achieving a net greenhouse gas reduction benefit. The annual application period occurs January – March.
CalRecycle Programs: For companies manufacturing with recycled materials there are numerous programs offered by CalRecycle, including low-interest loans and grants to promote infrastructure development for recycling/manufacturing projects that divert materials from landfills and that reduce greenhouse gas emissions. During FY 2018-19 $11.0 million of grants were awarded.
Workforce Training: Local Workforce Development Boards can offer On-the-Job Training (OJT) contracts where there is a need for training on new equipment or process. This incentive is typically available for lower skilled positions/employees. Workforce development boards usually reimburse up to 50% of wages over a 3-6 month training period, depending on the job. Funding is typically exhausted before the end of the fiscal year.
Employment Training Panel (ETP): Through a competitive application process ETP will issue contracts for specific training, typically geared towards higher skills or specialized positions. The maximum benefit has been $750,000 per project. The program is designed to cover training needs that are not part of the OJT program. Applications may be submitted monthly and will be evaluated based on the number of employees being trained; the level of training and curriculum; average wages; and industry cluster (manufacturing is a priority). Companies can apply annually for five years. ETP also provides training dollars to local community colleges which can in turn provide training curriculum to business at no cost.
Rate Discounts: Electric power rate discounts (typically 12%, 18%, 25% or 30% over five years), are offered by Pacific Gas and Electric (PG&E) and Southern California Edison (SCE), depending on whose service territory in which a project locates. Discounts are available to new companies bringing new jobs and new loads of 200kW or more. Existing California companies that are expanding, or considering relocations out of California also are eligible for the program (such companies must sign an affidavit that without the incentive they would most likely leave the state). In some areas in California the local irrigation districts also are able to provide power at discounts of up to 20% versus the investor-owned utilities. Gas is not included in rate discount programs.