California Competes: Understanding What Tax Credits Have to Offer.

• Author: Klasing, David W.
• Position: CA Tax

The California Competes Tax Credit (CCTC) is a nonrefundable credit for businesses that are looking to grow within California, whether they are already doing business here or relocating to the state.

How Does the CCTC Work?

Businesses interested in applying for the CCTC must obtain a credit agreement from the California Governor's Office of Business and Economic Development (GO-Biz). Within the credit agreement, Go-Biz and the business will agree upon CCTC "milestones" that must be met to claim the credit. A business may claim the CCTC in the year that a milestone is met. Milestones typically involve the hiring of employees, salary levels and project investment.

The CCTC is available for all tax years beginning on Jan. 1, 2014, through Jan. 1, 2025. The credit is nonrefundable and can reduce a business taxpayer's tax below the tentative minimum tax. If a business cannot utilize the full amount of the CCTC, it can be carried forward for up to six years.

How Is the FTB Involved with the CCTC?

The FTB reviewes the books and records of a business that has entered into a credit agreement to ensure that the business is upholding its obligations under the agreement, and that it has met (and continues to meet) its milestone(s).

If the FTB determines that a breach of the credit agreement has occurred, the business and GO-Biz will be contacted with the information giving rise to the potential breach. If GO-Biz also determines that a breach has occurred, ample time is typically given to the business to rectify the situation. If the business fails to resolve the matter, GO-Biz may order the recapture of the CCTC.

Who Can Apply for a Credit Agreement?

Large and small businesses can apply for a CCTC agreement. Smaller businesses are especially encouraged to apply as 25 percent of the $200 million allocated to the program in each fiscal year is reserved for small businesses. For CCTC purposes, "small business" is defined as having no more than $2 million of gross receipts (less returns and allowances) in the prior tax year.

Clients interested in the CCTC should contact their tax professional or visit calcompetes.ca.gov.

California New Employment Credit

The California New Employment Credit (NEC) is serving as a replacement for the familiar Enterprise Zone hiring tax credit. Much like the Enterprise Zone tax credit, the NEC aims to provide employers with an incentive to hire full-time employees and pay competitive wages.

How Does the NEC Work?

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