On Tuesday, January 2, 2018, The California Governor’s Office of Economic Development (GO-Biz) began taking applications for the second round of the FY 2017-2018 California Competes Tax Credit program (“Cal Competes”). The application window is just three weeks, with the deadline to apply on Monday, January 22, 2018. The California Competes Tax Credit is an income tax credit available to businesses who want to come, stay, or grow in California.

The CalCompetes program expects to award a total of $230 million of discretionary, non-refundable, corporate income tax credits during the current fiscal year. The tax credits are awarded in three tranches, each of which entails separate applications and approvals. Of this total, $75 million already was awarded on November 16, and another $100 million will be made available during this current round. Companies missing the January 22nd deadline will have one last opportunity to apply for CalCompetes benefits during a final round for which the application window is March 5 – March 26th.

However, those applicants for the March round will be vying for a significantly smaller pool of tax credits – $55.4 million, plus the carryover of any un-awarded credits from prior rounds.

Regardless of when they apply, all aspiring to obtain CalCompetes tax credits will encounter a 2-phased, competitive application process. During Phase 1, with a few exceptions, only those applications with the most advantageous cost-benefit ratio are likely to be accepted for Phase 2, where they will be subject to additional vetting. This cost-benefit ratio is calculated by dividing (a) the amount of credit requested by (b) the sum of aggregate compensation for employees (new or retained) plus the total capital expenditures being created by a project over a 5-year period. As such, applicants are advised to carefully balance their jobs and investment commitments against their tax credit request to achieve a competitive cost-benefit ratio and maximize prospects of obtaining a tax credit award.

The future of CalCompetes is uncertain. The incentive is slated to sunset in June and the non-partisan California Legislative Analyst’s Office has recommended terminating the program after this fiscal year in favor of broad-based business tax relief. Governor Brown can reauthorize Cal Competes before he leaves office in 2018, or the legislature can take steps to renew the program however there are yet no signs that either will do so.

For more information about CalCompetes and other business incentives programs in California please send an email to ashapiro@BLSstrategies.com. For real-time updates on all state incentive programs please visit the BLS & Co website at www.BLSstrategies.com.