California Competes Tax Credit is an income tax credit for businesses that are expanding or relocating to California. It is a tax credit program that Gov. Jerry Brown approved in March of 2013. This tax credit is an application-based credit that can be used against the income tax due to the Franchise Tax Board (FTB). In September of 2014, Jerry Brown signed legislation that allows the credit to offset the Alternative Minimum Tax (AMT). The credit has a 6-year carryover, is non-refundable, and is tied to achieving contractual (hiring & investment) milestones that are projected over the next 5 years.

The credit awards are based on 11 factors:

1. Number of jobs created or retained
2. Compensation paid to employees
3. Amount of investment
4. The extent of unemployment or poverty in business area
5. Other incentives available in California
6. Incentives available in other states
7. Duration of proposed project and duration of commitment to remain in this state
8. Overall economic impact
9. Strategic importance to the state, region, or locality
10. Opportunity for future growth and expansion
11. The extent to the benefit to the state exceeds the amount of the tax credit

The current application period is open from January 4^th through January 25^th, 2016. $75 million in credits will be available with no more than 20% may go to anyone applicant per fiscal year. 25% of the total amount each fiscal year is reserved for small businesses. Small business is defined as $2 million or less in gross receipts.

The application has a two-phase evaluation process

Phase I – An automated process in which the applicant’s requested tax credit, aggregate employee compensation, and aggregate investment are evaluated to determine a cost-benefit ratio (return on investment) for the state. The cost-benefit ratio = Amount of credit requested / Aggregate employee compensation + Aggregate Investment. Applications with the most advantageous cost-benefit ratio will be moved to Phase II.

Phase II – Evaluation of applicants based on 8 additional factors including the Phase I ratio calculation. Those factors include:

1. Phase I information
2. The extent of unemployment/poverty
3. Other incentives available
4. Economic impact
5. Strategic importance
6. Number of retained employees
7. Opportunity for growth/expansion
8. Salary / benefits
9. Other information requested

Terms and conditions of the agreement after the credit is awarded include:

1. Minimum employee compensation and retention period
2. Credit distribution period
3. Recapture provisions if the applicant fails to meet milestones
4. FTB has access to the application and all documentation
5. FTB will review books/records for agreement compliance
6. If the applicant fails to meet “milestones”, the FTB will notify the Governor’s Office of Business and Economic Development (GO-Biz) which administers the California Competes Credit.
7. The GO-Biz committee will approve or deny recapture.

The next application period will be from March 7 through March 28, 2016, and $50.9 million of credits plus any remaining unallocated amounts from the previous application periods will be available. If you are interested in finding out more about this credit, please let us know.