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New Tax Credits Encourage Businesses to Expand to California

Barbara Lemmer

After years of being perceived as a state that doesn’t go out of its way to welcome businesses, California recently made a major change. In 2013, when Governor Edmund G. “Jerry” Brown signed Assembly Bill 93 and Senate Bill 90 into law, California established a new office responsible for economic development and created significant new tax incentives for businesses expanding or locating to California.

This office, the Governor’s Office of Business and Economic Development (GO-Biz), is California’s point of contact for all job creation and economic development efforts. GO-Biz now provides resources to help with the clearing of regulatory hurdles, permit streamlining, small business assistance and site selection. GO-Biz’s objectives include retaining, attracting and expanding California businesses. The office is also responsible for the management of tax incentives such as the California Competes Credit and the New Employment Credit.

The New Employment Credit is for businesses located within a designated geographic area, including pilot areas in Fresno, Riverside, and Merced. Qualified businesses can obtain credits based on wages paid during the credit year. New Employment Credits are equivalent to 35 percent per year for wages between 150 percent and 350 percent of the California minimum wage. These credits can be obtained for wages paid for 60 months from the initial hire date. These credits can add up very quickly and provide substantial benefit for businesses that qualify.

The California Competes Credit, on the other hand, is a little more complicated. This is a credit against state income taxes for businesses locating or expanding in California. GO-Biz has $151 million available for the California Competes Credit in the 2014-2015 fiscal year. Applicants for this credit are evaluated through a two-part review process.  Phase I includes a cost-benefit analysis of each proposal along with an objective evaluation. Those businesses with the lowest cost-to-benefit ratios will move on to the next phase.

In Phase II, an in-depth subjective evaluation of each proposal is executed by GO-Biz. Some of the factors considered include strategic importance, economic impact and the location of the proposed expansion.

Both the California Compete Credit and the New Employment Credit are easy to apply for, and can potentially have great benefits. California companies should examine each credit carefully to determine eligibility. If you have any questions regarding the interactions with GO-Biz, the New Employment Credit, or the California Competes Credit, please contact our office.