Got Credits? Top Tax Strategies for California Businesses in 2018.

• Author: Tran, Alex
• Position: California taxation

many companies operating within California are finding themselves in the enviable position of needing to expand their headcounts and facilities to meet market demands. Throughout each stage of the expansion process, from concept to construction to a finished building, there are three specific tax strategies California-based companies can employ to reduce their tax burden. As each phase of the expansion project is completed and each tax strategy is used the tax savings potential grows exponentially.

California Competes Tax Credit

In the California Competes Tax Credit (CCTC) program's 2017-18 fiscal year, the California Governor's Office of Business and Economic Development (GO-Biz) is authorized to negotiate more than $230 million in California income tax credits over three application periods. With the first application period valued at $75 million completed, an additional $100 million is available during the second application period, which opened Jan. 2.

Who Qualifies: GO-Biz's goal is to incentivize businesses to grow new full-time jobs and capital investments in California. For that reason, the CCTC is available to businesses located in and out of California. While CCTC awards are available to any type of business, two activities have dominated the list of awardees since the program began in 2014: manufacturing and R&D.

How It Works: Businesses that apply for the CCTC compete against one another based on the amount of California full-time jobs they're projecting to create and how much they intend to spend in California capital investments over the next five years. Awards have gone to businesses growing several hundred full-time jobs and spending well into the tens of millions in capital investments, as well as businesses growing far fewer jobs and spending far less on investments. This is especially true for those performing manufacturing or R&D activities.

With two application periods left in 2018 (January and March), a company's application timing is critical. CCTC law sunsets June 30, the end of the state's 2017-18 fiscal year.

Example: A manufacturer of optical devices is growing rapidly, but that growth is putting pressure on existing resources. The company plans to expand its California headquarters and hire staff, which makes it a prime candidate for the CCTC. It develops a compelling story for the CCTC selection committee and is successful in receiving $750,000 to reinvest into its business.

Partial Sales and Use Tax Exemptions

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