As we’ve explained before, tax incentive programs are designed to provide companies with funds set aside by states or municipalities; businesses are chosen to receive these incentives based on their potential for creating jobs, increasing manufacturing activities or carrying out other positive business endeavors like incorporating sustainable practices, to name a few. We’ve previously reported on some of the newer California incentive programs that replaced the sunsetted enterprise zone program. Here is an update of some current California tax incentive programs that may benefit your company.
The California Competes Tax Credit
This is one of California’s tax incentive programs that we’ve discussed a lot this past year. It is designed to attract out-of-state businesses to expand into the Golden State, or to encourage existing companies to stay and grow here. It’s been lucrative so far, with most of the benefit going to existing California companies engaged in expansion. During the last fiscal year (which ended June 2015), Tesla received $15 million, Northrop Grumman Systems Corporation was allocated $10 million and Samsung Semiconductor, Inc. wrangled $9 million.
The California Competes Tax Credit can benefit both large corporations and small businesses. Small businesses are allotted 25% of the total funding. The tax incentives are negotiated and distributed by GO-Biz, which is now accepting applications for fiscal year 2015-2016. Here are the upcoming application periods:
- January 4, 2016 through January 25, 2016
- March 7, 2016 through March 28, 2016
Contact us to find out more! We would love to help you take advantage of this great opportunity. For more information about the California Competes Tax Credit, read our article about it here.
The California Manufacturer’s Sales Tax Exemption
The California Manufacturer’s Sales Tax Exemption, which went into effect July 1, 2014, is an incentive program that allows biotechnology companies and manufacturing businesses to save a portion of the state sales tax rate on equipment purchases related to manufacturing and research and development.
To qualify, the following three conditions must be met:
- “Qualified Person” must be engaged in certain activities to be eligible (companies must be engaged in a manufacturing or R&D NAICS code).
- “Qualified Property” must be purchased (property must be used within CA).
- Property must be used for the purposes of the exemption (equipment must be used over 50% of the time in qualified manufacturing and R&D within California).
As we’ve discussed in previous articles, this incentive (sales tax exemption) is very beneficial for qualified companies because the tax savings is recognized immediately upon purchase of the equipment (the purchaser provides the vendor with an exemption certificate, and the amount of sales tax charged is reduced by the exempt amount – roughly half). However, we caution our clients to make sure to maintain all supporting documents for future audit (please check out our recommendations here).
Film Producer Credits
In an effort to boost the level of local movie productions, California recently introduced a new tax incentive program that offers more than $55 million in credits. So far, more than 250 movie projects have been submitted for their share of the funds.
This program benefits all kinds of hopeful producers; only 32 of the films submitted were studio-backed, and 222 came from independent filmmakers. The program has two rounds of incentives to offer each year, one for TV and one for films; the next application periods begin in November for TV shows and January for films.
California’s New Employment Credit
The California New Employment Credit is available every year to eligible taxpayers who hire qualified employees in specific areas, meet several minimum wage thresholds, and increase overall employment within the state. Technically, the purpose of this credit is to increase state employment. However, the incentive program only applies to designated geographic areas and many taxpayers aren’t able to take advantage of this opportunity.
As we’ve previously reported, very few companies will actually qualify for this credit. That said, if you are a company that is hiring in economically challenged areas of the state, it may be worth contacting us to discuss your business’ eligibility and potential benefit.
Of course, as California adds or revises their incentive programs we’ll be sure to report the changes here. In the meantime, contact us if you want to learn more about any of the above programs!
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Competes Tax Credit. To learn more, contact us today at www.MilesConsultingGroup.com.
