The California Governor’s Office of Business and Economic Development (GO-Biz) announced today that it will begin accepting applications for the second round of the FY 2014-2015 California Competes Tax Credit. This is the second of three rounds of funding for FY 2014-2014 GO-Biz and is the program’s largest ever, with $75 million in credits being made available. Applications for this round will be accepted through 11:59 PM Pacific Time on February 2, 2015.
In July 2013, Governor Jerry Brown signed Assembly Bill No. 93 to replace California’s existing incentive programs with a new Economic Development Initiative. The California Competes program is the centerpiece of this initiative and provides for a location agnostic tax incentive program for new and retained businesses. California Competes is a deal closing credit which is administered by the California Franchise Tax Board.
California Competes is a discretionary fund capped at $151.1 million for the 2014-2015 fiscal year and $200 million annually for the 2015-2016 fiscal year through the 2018- 2019 fiscal year. Total funding for this round is $75 million. No more than 20% of total funding may be allocated to any one taxpayer and 25% of the total funding is allotted for small businesses.
California Competes tax credits may be realized in full or phased-in upon reaching negotiated milestones. The credits can be applied to corporate income taxes only and they may be carried forward for up to 6 years. Credits will be allocated to taxpayers as set forth in a written agreement between the company and GO-Biz. The agreement process provides flexibility in the ability to negotiate potential transfers of credits.
Applications for round two of funding for FY 2014-2015 will be evaluated following the February 2 deadline for submission. The evaluation process occurs in multiple phases and culminates in a public committee meeting. The anticipated time from application to award is 45 – 90 days. Evaluation of applications will occur in two phases.
Phase I: Projects are scored on a cost/benefit ratio determined by the project’s investment and total compensation paid to new employees. This economic impact is weighed against the amount of the credit sought. The top applications requesting an aggregate of 200% of the available amount will move to Phase II.
Phase II: In Phase II GO-Biz will examine a broad range of project-specific factors, both qualitative and quantitative, including:
- Job retention
- Other incentives available
- Opportunities for future growth
- Economic impact in California
- Extent of unemployment or poverty in the area
- Strategic importance
- Fringe benefits
Negotiation & Award
After passing Phase II evaluation, applicants negotiate contracts with the state. The state is willing to negotiate certain aspects of the California Competes Tax Credit Agreement, which include the minimum annual and cumulative average annual salary of full-time employees hired, as well as the allocation of tax credits. However, it should be known that the state is reluctant to allocate more than 50% of the tax credits in year 1. Upon arriving at a recommendation, all credit agreements are made public, including the following terms:
- Minimum employee compensation
- Minimum retention period
- Credit distribution period / milestones
- Recapture provision
All award information including company name, location, details of award will be made public prior to committee meeting. The five-person California Competes Committee will accept or reject a project credit application based on the recommendation from GO-Biz.
For more information about how Hickey & Associates can help your organization apply for the California Competes Tax Credit, pleasecontact us now.