California Competes Tax Credit (CCTC): This discretionary program offers non-refundable corporate income tax credits to businesses that create new jobs and make capital investments. Companies must apply for tax credits during one of several open application periods that are held several times a year. 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) are more 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. Unused credits may be carried forward for up to 6 years.
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: 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.
Manufacturing and R&D Partial Sales and Use Tax Exemption: All manufacturers and businesses primarily engaged in R&D related to the physical, engineering, and life sciences are eligible for a partial exemption in state sales and use tax (3.9375%). The partial exemption only applies to the state sales tax rate – businesses are still subject to local sales tax. California caps the amount of equipment that a business may exempt from state sales tax to $200 million of equipment per year.
Industrial Development Bonds (IDB): Competitive financing option that provides tax-exempt securities of up to $10 million for the acquisition, construction, rehabilitation and equipping of manufacturing and processing facilities for private companies. At least 95% of bond proceeds must be spent on qualifying costs such as land, building, and equipment. Interest rates for these bonds are typically 20% to 30% lower than conventional financing.
Last updated: May 2017