If your organization is moving or expanding to California, you can benefit greatly from the California Competes Tax Credit (CCTC). The CCTC is an income tax credit program that incentivize businesses to grow in California and is usually awarded for one anchored base year and five years forward.
BPM’s Economic Consulting Services team works with taxpayers to support their cases during the process of obtaining and maintaining the tax credit, and to increase their chances of obtaining and preserving a favorable deal. The CCTC can be an important tool for organizations to expand and boost the local economy, as well as increase cash flow during turbulent economies.
The California Competes Tax Credit Process
To receive the CCTC, interested taxpayers, who have not received or applied for $5 million in tax credits in a given year, submit an application with a comprehensive proposed project narrative. In the proposed project narrative, businesses specify their future expansion expectations and how the credit will create the incentive to realize the in-state job growth and to make capital expenditures in California. In the application, businesses also explain why the business needs the credit.
All this needs to be supported by quantitative and qualitative economic analysis to be awarded the limited amount of credits available. The application and proposed project narrative is reviewed and negotiated by the Governor of California’s Office of Business and Economic Development (GO-Biz), and approved by the California Competes Tax Credit committee. This review process happens in two phases. After the two review phases, there is a negotiation phase, and finally, the approval of the credit.
Phase 1 - GO-Biz reviews the business project plan, where the credit amount requested is compared to the hiring and investment commitments of each application received by the committee. This comparison evaluation is done with the cost benefit ratio, calculated as:
Amount of credit requested / Aggregated employee compensation + Aggregated investment
The highest ratios from an application period pass to the second phase4.
Phase 2 - A variety of quantitative and qualitative economic aspects are taken into consideration. Pivotal facts that determine the final tax credit outcome are:
- New jobs that will be created in California
- Compensation and benefits for employees
- Amount of investment
- Timeline of project and commitment to remain in the state
- Extent of unemployment or poverty in business area
- Extent of benefit to the state over and above the amount of the tax credit
- Incentives available in other states
- Opportunity for future growth and expansion
- Other incentives available in California
- Overall economic impact
- Strategic importance to the state, region, or locality
- Training opportunities offered to employees
All of the facts mentioned are submitted in the application and supported in by the proposed project narrative.
Negotiation phase – The selected taxpayers who pass phase two will have the opportunity to negotiate the terms of the tax credit agreement. Important terms negotiated here are the taxpayer’s milestones and commitments of the investment plan disclosed in the project narrative, tax credit amount and period of the tax credit.
Approval phase - Once the negotiation phase is completed, the tax credit agreement is approved by the California Competes Tax Credit committee. The overall process takes approximately 90 days. It is critical the taxpayer meets its annual investment plan milestones as agreed to in the agreement. Only by meeting the annual milestones will the taxpayer be able to claim the tax credit for that specific tax year. Otherwise, the credit is not earned for that fiscal year.
For reference, please see the next application windows:
- July 27, 2020, through August 17, 2020 ($80 million available)
- January 4, 2021, through January 25, 2021 ($80 million available)
- March 8, 2021, through March 29, 2021 ($71.1 million plus any remaining unallocated amounts from the previous application periods)
How BPM Can Help You
At BPM, we advise and assist organizations during all the stages of the tax credit process. This includes:
- Prepare and submit the application
- Gather and clean requested data by GO-Biz (employee information and cost schedules)
- Draft proposed project narrative (including quantitative and qualitative economic support)
- Assist in negotiation phase with GO-Biz and California Competes Tax Credit committee
- Maintain milestones compliance required by tax credit agreement. This includes providing strategic solutions for compliance, current stage assessment and forecast analysis.
- Also, if required due to substantial changes in the organization’s business, renegotiation of tax credit milestone terms with GO-Biz and California Competes Tax Credit committee
Contact BPM’s Economic Consulting Service Team
Our team has global experience in quantitative and data analysis applied to business strategies, financial planning, tax and economic research. Contact us today to learn more about how our expertise can support your organization.