Multistate Tax Alert: California Competes Tax Credit Application Process Now Open
The California Governor’s Office of Business and Economic Development (“GO-Biz”) has enacted emergency regulations1 and opened the initial application phase for the California Competes Tax Credit (“CCTC”). The CCTC is part of Assembly Bill (“AB”) 93, which phased out and replaced the California Enterprise Zone (“EZ”) tax credits. The CCTC is a competitive negotiated income tax credit available to businesses that want to expand in or relocate to California. Projects that have commenced in the past 15 months may be eligible. As part of the application and negotiation process, tax credit agreements will be negotiated by GO-Biz and approved by a newly created California Competes Tax Credit Committee (“CCTC Committee”), consisting of the State Treasurer, the Director of the Department of Finance, the Director of GO-Biz, one appointee from the Senate and one appointee of the Assembly.2 The initial application period for fiscal year 2013-2014 began on March 19, 2014 and will close on April 14, 2014, 11:59 PM Pacific Standard Time.3
In this Tax Alert we provide a summary of the CCTC and information on the application process.
Summary of the CCTC
The CCTC is a negotiated incentive income tax credit that will be awarded to taxpayers based upon a competitive application process. The CCTC will be administered by GO-Biz and tax credits will be awarded by the CCTC Committee. GO-Biz submitted emergency regulations to the California Office of Administrative Law (“OAL”). The regulations became effective on February 20, 2014.4
Under the CCTC, taxpayers will compete for a set amount of tax credits made available by GO-Biz each fiscal year. The amount of CCTC incentives available for fiscal year 2013-2014 is $30 million. The amount of available incentives for fiscal year 2014-2015 is expected to be approximately $150 million.5 The CCTC Committee will set aside 25% of the available amount for small businesses (i.e., businesses with gross receipts of less than $2 million in the prior tax year). Also, no single taxpayer may receive more than 20% of the tax credit allocation.6 There is no minimum tax credit amount nor is there a fee to apply for the CCTC.
GO-Biz opened the initial application period on March 19, 2014. The period will conclude on April 14, 2014, at 11:59 PM Pacific Standard Time.7 The application period will reopen again sometime in fiscal year 2014-2015. The application process will have two phases. In Phase 1, using an online form, the taxpayer will provide information about the project, including:
- Information about the applicant;
- A brief description of the project;
- Whether the project is related to expansion, retention or relocation;
- Aggregate number of jobs the applicant will create or retain in the state;
- Aggregate compensation paid or proposed to be paid to newly hired or retained employees
- Aggregate investment by the applicant in the project; and
- Amount of CCTC requested and over what time period.
After the close of the initial application period, GO-Biz will then rank the Phase 1 applicants, using a formula to identify the most competitive applications.8 GO-Biz will then select the top ranking applicants whose aggregate credit requests total at least 200% of the total available credit amount. These applicants will proceed to Phase 2 of the process.9
Phase 2 will involve negotiations between the various applicants and GO-Biz. As part of these negotiations, GO-Biz will consider several qualitative factors, including but not limited to, the economic impact of the project on the local community, the location of the project, the number of new employees to be hired, other incentives that may be available, additional opportunities for future expansion and the strategic importance of the business to the state.10 As part of the Phase 2 process, if any of the quantifiable information provided in Phase 1 (e.g., number of jobs created, aggregate investment, etc.) changes by more than 5%, GO-Biz may reject the application.11
The tax credit allocation must be finalized in an agreement between GO-Biz and the applicant and then approved by a vote of the CCTC Committee.12 For purposes of this application approval phase, the CCTC Committee will meet on June 19, 2014.13 All CCTC awards will be made publicly available upon CCTC Committee approval,14 unless there is information the applicant and GO-Biz considers to be a trade secret, confidential, privileged or otherwise exempt under the California Public Records Act.15
Once the CCTC Committee approves an agreement, the California Franchise Tax Board (“FTB”) will be notified. The FTB will enforce the agreement and notify GO-Biz if a taxpayer is not in compliance with the agreement.
As explained in our previously issued Tax Alert,16 the economic development initiatives passed under AB 93 have potential applicability to a wide range of taxpayers. If a taxpayer is considering expansion (employment and/or investment) or relocation to California or has done so within the past 15 months, an application under the CCTC should be considered.
If you have questions regarding the CCTC or other credit and incentive matters, please contact any of the following Deloitte Tax professionals:
Deloitte Tax LLP, San Francisco
+1 415 783 6041
Deloitte Tax LLP, Chicago
+1 312 486 2716
Deloitte Tax LLP, Pittsburgh
+1 412 338 7745
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As used in this document, "Deloitte" means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
1 Cal. Code. Regs., tit. 10, §§ 8000- 8070 (enacted Feb. 20, 2014), available at: http://www.business.ca.gov/Portals/0/CA Competes/Docs/California Competes Tax Credit Regulations.pdf.
2 Cal. Rev. & Tax Code §18410.2.
3 Notice Regarding California Competes Tax Credit, Governor's Office of Business and Economic Development (GO-Biz) (Mar. 18, 2014), available at: http://www.business.ca.gov/Portals/0/CA Competes/Docs/Notice California Competes Tax Credit FINAL 3_18_14.pdf.
4 Cal. Code. Regs., tit. 10, §§ 8000- 8070 (enacted Feb. 20, 2014), available at: http://www.business.ca.gov/Portals/0/CA Competes/Docs/California Competes Tax Credit Regulations.pdf.
5 Please see our July 9, 2013 Multistate Tax Alert summarizing the provisions of the CCTC, available at: https://www.deloitte.com/assets/Dcom-UnitedStates/Local Assets/Documents/Tax/us_tax_multistate_CA_070913.pdf.
7 Notice Regarding California Competes Tax Credit, Governor's Office of Business and Economic Development (GO-Biz) (Mar. 18, 2014), available at: http://www.business.ca.gov/Portals/0/CA Competes/Docs/Notice California Competes Tax Credit FINAL 3_18_14.pdf.
8 Cal. Code. Regs., tit. 10, § 8030(g)(1).
10 Cal. Code. Regs., tit. 10, § 8030(g)(2).
11 Cal. Code. Regs., tit. 10, § 8030(l).
12 Cal. Code. Regs., tit. 10, § 8050.
13 Notice Regarding California Competes Tax Credit, Governor's Office of Business and Economic Development (GO-Biz) (Mar. 18, 2014), available at: http://www.business.ca.gov/Portals/0/CA Competes/Docs/Notice California Competes Tax Credit FINAL 3_18_14.pdf.
14 Cal. Code. Regs., tit. 10, § 8060.
15 Cal. Code. Regs., tit. 10, § 8030(e).
16 Please see our July 9, 2013 Multistate Tax Alert summarizing the provisions of AB 93, available at: https://www.deloitte.com/assets/Dcom-UnitedStates/Local Assets/Documents/Tax/us_tax_multistate_CA_070913.pdf.