The California Competes Tax Credit Program is a five-year competitive income tax credit incentive program aimed at companies either planning to move to California or expanding their existing business operations within the state. The program is administered by the Governor's Office of Business and Economic Development (GO-Biz). There will be three application periods for FY 2016/2017 as follows:

* Round 3 funding amount may also include any remaining unallocated amounts from the previous application periods.

A total of $243.3 million in tax credits will be available in FY 2016/2017. Allocation of credits is based on a competitive and discretionary application process.

Successful projects

The program is highly discretionary, and GO-Biz has demonstrated preferences for certain projects. Based on EY's analysis of the program, and through discussions with the GO-Biz team, the following are key attributes to a successful project:

— Expansions, relocations, and new footprints are all welcome.

— Competition is a focal point of any successful application. Demonstrating that the project could occur outside California, and/or may not occur in California "but for" the credit is crucial.

— The amount of credit requested should be "significant" and "material." It should be enough to demonstrate that it would cause a company to make a decision between placing the project in California versus alternative, out-of-state location(s).

— Emphasis is placed on high-wage quality job creation - average wages (over $55,000).

— Preferred industries are headquarters, R&D, technology and manufacturing, (particularly green manufacturing).

— Market-driven investment is crucial. Retail, hospital/health services, utilities and non-profits are not preferred.

— Small businesses, those with less than $2 million of gross receipts in the last tax year, are targeted - with 25% of the overall funds allocated directly to these projects.

Award amount

The amount of credit awarded will depend on the specific project's total five-year economic impact, including proposed job creation, new capital investment and strategic importance to California.

Implications

The California Competes Tax Credit can be a valuable credit for companies and projects meeting the criteria described above. Companies should review any expansion, growth or relocation plans to see if they are a good candidate for this credit program.

Please contact one of the West Region Indirect Tax professionals for further information about the program.

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