On July 16, 2021 Governor Newsom signed into law a number of tax relief provisions contained in Assembly Bill 150 (AB 150). He’d previously signed into law Senate Bill 151 (SB 151) and Senate Bill 129 (SB 129) on July 12, 2021. This alert is focused on the expanded funding of the California Competes Tax Credit in AB 150 and the creation of the California Competes Grant Program in SB 151, along with the $120 million appropriations for its funding during the 2021/2022 fiscal year in SB 129.
California Competes Tax Credit
Credit Overview
The California Competes Tax Credit allows a credit against personal and corporate income tax in an amount provided in a written agreement between the taxpayer and the Governor’s Office of Business and Economic Development (GO-Biz) after having been approved by the California Competes Tax Credit Committee. The credit is based on specified factors, including the number of jobs the taxpayer will create or retain in the state and the amount of the taxpayer’s investment in the state. As part of its application for the credit, the taxpayer submits a project plan that details its job creation and capital investment commitments over the next five years. Once awarded, the credit is usually taken ratably over the same five-year period as the project plan. If a taxpayer does not have sufficient tax liability in a year with a credit installment, there is a six-year carryforward period to utilize the credit. The California Competes Tax Credit has been authorized for taxable years beginning after January 1, 2014, and before January 1, 2030. Under prior law, $180 million dollars had been authorized for the current fiscal year’s credit allocation. With the limited available annual funding of the credit allocation in each fiscal year, it is a competitive process for a taxpayer to receive a tax credit.
Additional Funds Allocated for the 2021/2022 Fiscal Year
As part of the overall COVID-19 relief plan in AB 150, the funding for the California Competes Tax Credit in the 2021/2022 fiscal year has been increased to a total of $290 million. The increased funding should permit additional taxpayers to receive tax credits under this program.
Next Steps
The California Competes Tax Credit typically has 3 application windows during the state’s fiscal year. Each application period lasts about three weeks and the periods are usually during the months of August, January, and March during each California fiscal year beginning July 1. The application periods for the 2021/22 fiscal year are:
Taxpayers who are interested in the credit should begin to think about their projected job creation and capital investment in California over the next five years in order to begin collecting the necessary information for the application.
For additional information on the California Competes Tax Credit, please see our recent Alert at California Competes Tax Credit Application Period Runs from July 26 to August 16, 2021: Holthouse Carlin & Van Trigt LLP (hcvt.com)
California Competes Grant Program
SB 151 authorizes the creation of the California Competes Grant Program, following appropriation by the Legislature. SB 129 authorizes $120 million for the program in the 2021/22 fiscal year, with additional appropriations required in subsequent budget years.
Grant Program Overview
The new California Competes Grant Program allows GO-Biz to award grants to a business that meets one of the following criteria:
When determining whether to enter into an agreement between GO-Biz and the grantee business, GO-Biz will consider the extent to which the grant will influence the grantee’s ability and/or willingness to create jobs in this state that might not otherwise be created. GO-Biz may also consider other factors, including, but not limited to, the following:
No more than thirty percent of the aggregate amount of grants appropriated in any fiscal year can be allocated to a single grantee. A grantee is only eligible for a California Competes Grant if the grantee has not received a California Competes Tax Credit based on the same jobs or investment for which the grant is sought. The written agreement detailing the grant will include provisions detailing how the grant will be paid; i.e., in full upon approval, or in increments based on mutually agreed-upon milestones. The written agreement will also contain provisions to allow GO-Biz to recapture the grant, in whole or in part, if the grantee fails to fulfill the terms and conditions of the written agreement.
Why Create the Grant Program?
The creation of the California Competes Grant Program allows additional businesses in California to seek incentives for large-scale job creation or significant capital investment in California. Unlike the California Competes Tax Credit, a taxpayer need not have income tax liability in order to utilize the financial incentives awarded by the Grant Program. The California Competes Grant Program also is intended for projects of large job creation, infrastructure investment, or of strategic importance to the state. Its existence, combined with the increased funding for the California Competes Tax Credit, should permit more businesses in California to seek incentives to assist with their planned job creation and/or investment.
Grant Application Process
It is expected that GO-Biz will release information on how an applicant will apply for the California Competes Grant Program. Interested applicants should begin collecting information on their proposed job creation and/or infrastructure investments in California.
Next Steps
If you think the California Competes Tax Credit or Grant Program might be applicable to your business, please contact one of the HCVT State & Local Tax professionals listed below:
Douglas Andersen, Partner, douglas.andersen@hcvt.com, (562) 216-5512
Brett Johnson, Principal, brett.johnson@hcvt.com, (310) 566-1971
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