Although California repealed its poorly performing enterprise zone program, there are three programs in its place: the California Competes Tax Credit, a partial sales tax exemption for manufacturing equipment and the California New Employment Credit.

The CAEZ program is now largely considered to be ineffective for business attraction purposes, while also excluding many high-value companies in the state specifically because of their geographic location. California Competes was designed to fix these problems.

An Income Tax Credit For “High Value” Businesses Growing In California

The intended purpose of California Competes is to attract and retain California employers in industries with high economic potential and that provide their workers with good wages and benefits. Any business may apply. In fact, while the program is capped at $150 million for this fiscal year, 25% of the available tax credits are reserved for small business.

Here are a few high-level benefits of the California Competes Tax Credit:

• Since any business is able to apply, no one is excluded, which eliminates defining and lobbying for narrow interests.
  
  

• Because the program is designed to attract and retain businesses, this limits past controversy that revolved around credits awarded to out-of-state firms instead of valued in-state firms.
  
  

• The allotment set aside for small businesses ensures the program doesn’t favor large businesses while not offering small companies the same type of growth incentive.

California Competes Application Process

Companies must submit an online application for a two-phase review:

Phase I: An application is reviewed with a quantitative analysis, where the credit amount requested is divided by the sum of aggregate investment and aggregate employee compensation (new, full-time employees in California only). The applicants with the lowest ratios advance to Phase II.

Phase II: This second phase of the application review process includes several factors:

• Number of jobs to be created or retained

• Compensation paid, including wages, benefits and fringe benefits

• Investment in the state

• Unemployment or poverty where the business is located

• Incentives available to the business in the state (from all entities)

• Incentives available to the business in other states

• Durate of the proposed projects

• Overall economic impact

• Strategic importance to the state, region or locality

• Opportunity for future growth

• Extent to which anticipated benefit exceeds the tax credit

• Supplemental financial or other documentation to verify information provided

The great thing about the value of this tax credit is that it’s based on many factors reflecting a variety of economic development criteria and objectives.

New California Competes Application Rounds Announced

For fiscal year 2015-16, GO-Biz (The Governor’s Office Of Economic Development) will accept applications for the California Competes Tax Credit during the following periods:

• July 20, 2015 through August 17, 2015 ($75 million available)

• January 4, 2016 through January 25, 2016 ($75 million available)

• March 7, 2016 through March 28, 2016 ($50.9 million plus any remaining unallocated amounts from the previous application period)

Applications submitted during one round that are not approved carry over to subsequent rounds within the fiscal year. The limit that no single tax credit may be more than 20% of the total available applies to the entire year, not the amount set in a given application period.

Without a comprehensive, thorough approach to your verification process, there’s too much potential for either eliminating yourself from consideration completely or leaving viable tax credits on the table.

If you’re interested in capturing the California Competes Tax Credit for your business, it is recommended you reach out to an experienced tax consultant who understands exactly how to round up the right financial and other documentation to verify your tax credit claims. While you may not be in a position to apply to the first round of the California Competes application process, there are two more rounds and plenty of time left.

Ready to learn more about the California Competes Tax Credit? Take a look at tax credit and incentive programs in your area.