Op/ed: State’s tax credits open the door for business
By Bruce Stenslie
California officials are working hard to turn around the state’s image as a difficult business partner. Clearly, doing business here is not all smiley faces, but it’s not the curmudgeon it once was, either.
A series of robust business incentives help account for the positive change. When combined with the commitments of our regional economic development partners and our extraordinary quality of life, these incentives make California a far more competitive place to do business than is popularly thought. Yet, admittedly, the state does have more work to do to assure that we can maintain a strong economy. A couple years ago, we wouldn’t have been having this conversation. Even with a GDP on par with some developed countries, our state’s tax incentive resources weren’t nationally competitive. Today, there are a healthy number of business resources to help companies grow or that offer ammunition to fight off out-of-state incentives.
Here is a sampling of the most robust incentives and programs that companies on the Pacific Coast should be aware of:
California Competes: California’s highest profile incentive is the new California Competes Tax Credit, signed into law in 2013. It’s an income tax credit available to growing businesses or ones that are at risk of leaving.
This fiscal year, there is $151 million in credits available, with an additional $200 million annually for the next three years. In the first year of operation alone, the state has approved $150 million in credits, supporting the creation or retention of some 20,000 jobs and $6 billion in investment across the state. Ventura and Santa Barbara counties already have benefited from these funds.
The program allows a business to compete for an income tax credit based on in its new investments over a five-year period—on facilities, capital improvements and new employees. So if you apply today, your application can show that you’re hiring 20 new people the first year; that equates to 100 full-time-equivalent employees when you multiply their wage and fringe benefits over the five years. Any net new hires you make the next year will be multiplied for value over four years, and so forth. The amount of any credit awarded by the state will be negotiated based on the value of these new investments.
The Governor’s Office of Business and Economic Development announces when applications are accepted. The current round of applications closes April 16. If you miss this deadline, there will be additional rounds over the next three years.
Tax Credits for Manufacturers: Contrary to popular belief, California remains a global leader in manufacturing jobs and productivity. To help retain and grow the manufacturing sector, California maintains three strong programs. Manufacturers may benefit from a Research and Development (R&D) tax credit, administered through the California Franchise Tax Board.
The rules are specific and technical, but talk to your accountant about how you might qualify for what many consider the most competitive R&D tax credit among the 50 states. For manufacturing firms and certain R&D firms and investments, the State Board of Equalization administers a sales and use tax exemption of 4.19 percent (that is, the state’s share of sales tax) on the purchase of new manufacturing equipment.
Administered by the California treasurer, this same program considers sales and use tax exemptions for purchasing and installing manufacturing equipment that reduces energy consumption.
California Film and Television Tax Credit: In 2014, the Legislature and governor reached an agreement to substantially expand California’s Film and Television Tax Credit. The program allows a 20 percent credit for qualified production-related expenses to a taxpayer against state income taxes. Independent features and films relocating to California are eligible for 25 percent. A 5 percent credit bonus for filming outside the L.A. zone, music scoring/music tracking and visual effects expenditures is the cherry on top.
New Employment Credit: Also launched in 2014, is a New Employment Credit available statewide to areas meeting strict criteria for unemployment and poverty. While much of our region enjoys a higher standard of living, eligible neighborhoods include census tracts in Oxnard and Ventura. The credit is for 35 percent of wages, capped at $56,000 per employee.
We’re eager to do our part to assure our perceptions of the California business environment are informed by the facts about what resources are available. Our goal — and the state’s — is to have strong businesses that are competitive in the domestic and international marketplace.
• Bruce Stenslie is the president and CEO of the Economic Development Collaborative-Ventura County.