California Competes (CalCompetes) Tax Credit

Tax credits against a company’s state income tax liability can be awarded to eligible companies over a 5-year period with a 6-year carry over. Manufacturing and research firms expanding or new to the State of California are encouraged to apply. The company must apply and compete for the award based on 11 evaluation factors, mainly capital investment and new jobs to California. The application process is competitive and open periods for application submittals are July/August, fall and spring. Submitting an application should occur prior to a company’s investment and job hiring. As an example, other companies with like investment and payroll numbers requested $5 to 7 million in tax credits over 5 years.

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Capital Investment Incentive Program

Enacted in 1997, the Capital Investment Incentive Program (CIIP) authorized a local government to establish a CIIP. Once the CIIP is codified by the local government by a resolution or a local ordinance, the program authorizes a local government to rebate a ‘capital investment incentive amount’ to a manufacturer proponent that is equal to the property taxes owed on the manufacturing property in excess of the first $150 million assessment for up to 15 years. The incentive may only be offered after the proponent and the local government agree to a “Community Services Agreement” that requires the recipient to meet certain criteria, such as job creation numbers, wages paid at least to the level of the state average weekly wage, and local fees. In return, the company pays a community service fee equal to 25% of the capital incentive amount but not to exceed $2 million a year. Depending on approval amounts, the incentive could be approved to rebate a portion of the property tax assessment beyond $150 million back to Genentech over a 15-year period.

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Sales Tax Exemption

If any manufacturing operations occur at this facility, the company may qualify for a partial exemption of sales and use tax on manufacturing and energy generation equipment purchases and leases. This is an exemption vs. credit. The company needs only to provide a certificate to vendor when ordering equipment to receive exemption from these tax payments. The total California sales tax is 7.5% and the portion available for the exemption is 4.1875%. The exemption application process involves providing a list of all manufacturing equipment that needs to be purchased for this facility. All applicable equipment will qualify. This incentive is not retroactive, so the application process must be completed and vouchers received before the purchase of equipment takes place.
As an example, with $100 million in qualified purchases, the total tax exemption would be $4.2 million.

 

New commercial and industrial facilities who have considered an out of state location and would not base business operations in California without an Economic Development Rate are eligible for the ED Rate in Solano County. 
All locations in Solano County are eligible for a 12% discount on electric power for 5 years. The discount is on the power rate only, not additional surcharges and taxes. Similar to CalCompetes, this program/incentive is an application and it is recommended the application be submitted at the same time as CalCompetes application. As an example, a $500,000 per year electricity expense would yield nearly $60,000 per year discount for five years totaling $300,000.

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Research & Development Tax Credit

The California Research & Development 
(R&D) tax credit program reduces state income tax due to the Franchise Tax Board. A business may qualify for the credit if it paid for or incurred qualified research expenses while conducting qualified research activity in California. A business may receive 15 percent of the excess of current year research expenditures over a computed base amount (minimum of 50 percent of current year research expenses) or a 24 percent credit for basic research payments to third party organizations. A business may claim the credit on its tax return for the taxable year it incurred the qualified expenses. Qualified research expenses include wages, supplies, and contract research costs. To qualify, the research must be conducted within California and include basic or applied research of scientific inquiry, original investigation for the advancement of scientific or engineering knowledge or improved function of a business component. California has several exceptions to the federal law that can affect computations for the credit.

California Employment Training Panel (ETP)

ETP is a unique training reimbursement program. The Employment Training Panel (ETP) provides funding to employers 
to assist in upgrading the skills of their workers through training that leads to good paying, long-term jobs. ETP is an application process. Contracts with companies are typically two years in term. There are qualifications on the type of training as well as retention of the employees after training. There are some restrictions including training can not involved mandated health and safety training by the State, and training 
can not be “casual” on-the-job training. In addition, the company must retain the employee for 90 days after the training takes place.
As an example: Based on an estimate of 200 employees, if training is created totaling 80 hours per employee per year, and the reimbursable wage rate is $26 per hour 
(regardless of the actual pay rate of the employee), ETP could reimburse the company $2.64 million during the two-year contract period. (200 employees x 80 hours x 2 years x $26 per hour = $832,000). A representative of ETP is available to assist in the application process in person.

Recent state legislation allows for cities and counties in California to offer Capital Investment Incentive Programs (CIIP) to small and mid-size manufacturers and specified production facilities. The CIIP allows counties and cities to offer a capital investment incentive amount for 10 years, beginning I 2020-21, to the proponent of a proposed 
“qualified targeted manufacturing facility” that makes an initial investment of over $5 million in that facility. This is one incentive option that can be made available.

The City of Vacaville offers a fee deferral program for multi-family and non-residential projects for up to 
six months after a building permit has been issued. Additionally, the Sewer Impact Fee can be divided 
in to twelve monthly payments instead of one lump sum payment. 

Request expedited plan review, and receive plan check comments within days. Concurrent processing of certain development permits can occur prior to the approval of planning entitlements. 

City staff to provide technical, site selection and permitting process. 

The City of Vacaville can redirect a portion of local sales taxes collected from the consumers on e-commerce purchases to major companies that have distribution warehouse centers or headquarters in their boundaries. California recently signed a law that states the deals must describe the number of permanent or temporary jobs the companies plan to create. 

Manufacturing and R&D Partial Sales and Use Tax Exemption

All manufacturers and businesses primarily engaged in R&D related to the physical sciences, engineering, and life sciences industries are eligible for a partial exemption in state sales and use tax (3.9375%). The partial exemption only applies to the state’s portion of the sales tax rate (7.25%) – businesses are still subject to local sales tax. California caps the value of equipment that a business may exempt from state sales tax at $200 million per year. As this is a statutory benefit there is no need to apply for the exemption. Companies making qualifying purchases or leases must only provide their vendor with a timely partial exemption certificate to obtain the reduced tax rate.

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CAEATFA Sales and Use Tax Exclusion

The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides a full exclusion of the state’s 7.25% sales and use tax, as well as any  additional local jurisdictional tax, for manufacturers of alternative energy sources, advanced transportation products components or systems, and projects using recycled feedstock. Applicants must submit an application to the CAEATFA documenting equipment purchases and other taxable components for processing and/or facility construction and respond to other questions or requests for documentation to determine conformance with the “advance manufacturing” criteria.   Applications may be submitted monthly and are heard by panel two months following applications submittal. 

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Sales Tax Rebate

Local jurisdictions in California are empowered to rebate up to 30% of the local portion of the state Sales and Use Tax (typically one percentage point) for businesses who goods or services are subject to sales tax and where the point of sale is within the local jurisdiction.