There is one thing that is certain other than death and taxes. That is California does not have the best reputation as a business-friendly state. According to a recent report by CNBC, California was ranked as the least business-friendly state in the country. However, business owners in California may be able to take advantage of state and federal tax credits to help ease the burden of doing business in the Golden State.
One of the broadest tax credits available to businesses is the California Competes Tax Credit. The credit is generally available to businesses that want to come, stay, or grow in California. The tax credits are negotiated by the California Governor's Office of Business and Economic Development and approved by the relevant tax credit committee. Any business can apply for the California Competes Tax Credit; however, approval is based on a competitive application process. The program is intended to attract and retain high-value employers. A quarter of available credits are specifically reserved for small businesses with gross receipts of less than $2 million in the prior tax year. For the fiscal year 2016-2017, over $250 million will be available during multiple application periods continuing through March 27, 2017.
California also provides an R&D credit known as the California Research Credit. The California Research Credit offers credits on qualified expenses while conducting qualified research activities in California. This provides a credit of up to 15% on qualified research and 24% on basic research.
This program is similar to the federal R&D credit, with some notable exceptions. Unlike the federal research credits, California's research credits can be carried forward indefinitely, although it cannot be carried back. To qualify for this credit, the activity or project must satisfy a four-part test. Expenditures must be eligible expenses; the research must be undertaken to “discover information which is technological in nature,”; the taxpayer must pursue a “process of experimentation” during the research, and the taxpayer must intend to use the information to develop or improve a business component.
While not strictly a credit, the Employment Training Panel (ETP) provides financial incentives to employers looking to increase skills and training for employees. The funding comes from a special payroll tax. Rather than offering training, the ETP provides funding for employers, allowing them to determine their own training requirements. The ETP recently announced approval of more than $13 million in job training funds for almost 12,000 workers.
A Manufacturers' Investment Credit (MIC) may be available to taxpayers engaged in manufacturing activities in California. Other tax credits are more industry specific, such as the Film & Television Tax Credit, which encourages film and television production in California. For another tax credit available to California employers, see our blog post from last month covering the New Employment Credit. This provides a state tax credit to employers who hire qualified new employees. Many of these state-level tax credits also have a federal counterpart.
Butterfield Schechter LLP is San Diego County's largest firm focusing its law practice on employee benefit legal services and business counseling. Our firm can help your business identify tax-savings opportunities, avoid tax penalties, and plan for the upcoming tax year. Contact our office today with any questions on how we can help you and your business succeed.