California Competes Tax Credits (CCTC)

Leading The Way To Employment Tax Incentives

The California Competes Tax Credit (CCTC) is a discretionary state tax incentive available to businesses that locate, expand or remain in California. If your business is creating well-paying jobs in California, you may qualify to receive this valuable tax credit against your company’s California tax bill.

The CCTC program is designed to keep businesses in the state, as well as encourage businesses to move to the state or expand their current CA operations. The incentive comes in the form of an income tax credit resulting from a Tax Credit Agreement negotiated by the Governor’s Office Of Business And Economic Development (GO-Biz) and approved by the California Competes Tax Credit Committee.

The amount of the tax credit award depends on each company’s unique set of factors, focused primarily on future capital investment, employment growth and economic impact to the state of California.

California Competes Tax Credit Highlights

California Competes credits have been as low as $20,000 and as high as $6 million. All applicants compete against one another for a limited pool of funds with a special 25% allotment for small businesses (defined as a business with $2 million or less of gross receipts). Therefore, this program is applicable to businesses of all sizes.

CCTC highlights include:

  • Credit against California income tax liability
  • Non-refundable credit
  • Six-year carryover
  • Ability to reduce Alternative Minimum Tax (AMT) but not the minimum tax

CCTC Application Periods And Funding Levels

Period Tentative Credits Available
BEG END
September 29, 2014 October 27, 2014 $45 million
January 5, 2015 February 2, 2015 $75 million
March 9, 2015 April 6, 2015 $31.1 million plus unallocated funds from previous periods

Steps To Secure California Competes Tax Credits

As part of securing the CCTC benefits, a business needs to estimate their information over a five-year period (filing year plus four subsequent tax periods) and follow four steps in capturing any available benefits:

Application (Phase 1)

Determination of state return on investment

Application (Phase 2)

Consideration of various factors

Agreement

Receive final tax credit agreement

Reporting

Include credits on tax return

California Competes Credits Cost-Benefit Ratio

The cost-benefit ratio is a critical component that helps determine the return on investment for the state of California. ROI is one of the main considerations in determining whether an application passes the initial review to move from Phase 1 to Phase 2 of the application process.

  • Applications with the most advantageous cost-benefit ratio are moved to Phase 2
  • There is then a review of the top 200% of applicants for the CCTC

Factors And Information Applicable To CCTC Award Process

Application (Phase 1)
Automated process to determine the cost-benefit ratio for this employment tax incentive by evaluating a combination of the following factors:

  • Number of jobs created or retained
  • Compensation paid to employees
  • Amount of capital investment

Application (Phase 2)
Consideration of the applicant’s cost-benefit ratio and the following additional factors:

  • Extent of unemployment or poverty in business area
  • Availability of other California incentives
  • Availability of incentives in competing state(s)
  • Duration of project and commitment to remain in the state
  • Overall economic impact
  • Strategic importance to the state, region or locality
  • Opportunity for future growth and expansion

Agreement
Terms and conditions of the agreement include:

  • Minimum employee compensation and retention period
  • Credit distribution period
  • Recapture of provisions if applicant fails to meet commitments

Reporting/Compliance Review

  • Credits are reported on California tax returns
  • Annual review of books/records to confirm compliance with Tax Credit Agreement

Our Tax Navigation experts use that experience to help you quantify the projected benefits and develop a viable award request that moves you into the smaller pool of phase-two applicants.

Even more vital to your success, we help you craft an accurate yet compelling narrative, as required, adding persuasive power that provides you with a competitive advantage during the phase-two committee review.

We look forward to guiding you towards taking advantage of the California Competes Tax Credit. To learn more or begin your application process, click here to contact an expert CTI Tax Navigator today.

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