Focus on Two New California Incentives

By Guest Blogger: Monika Miles

In 2014, we were introduced to several new tax incentives in California, including the Hiring Credit, California Competes Credit, and the California Partial Manufacturers’ Sales/Use Tax Exemption. The Hiring Credit is a relatively difficult program to navigate and qualification is limited. However, the California Competes Credit and the California Manufacturers’ Exemption could prove beneficial to California companies, and technology companies here in the Silicon Valley.

The California Competes Tax Credit is a new credit aimed at either California companies expanding their operations within the state or out-of-state companies looking to relocate here. It may be of interest to technology companies that are expanding within CA both with respect to real estate and headcount.

The credit is a tax credit claimed on the CA Franchise Tax return. Because there are limited funds available ($150 million in FYE 6/30/15), there is an application and approval process, and the ultimate decision about who receives credits is made by a five member panel appointed by the governor. 25% of funds are set aside for small businesses (revenues less than $2 million). While the process is quite competitive, companies with the right fact pattern should consider applying (the next application period is January 2015 to February 2015).

While CA is typically regarded as unfriendly to business, this credit, together with the new partial manufacturers’ sales tax exemption could be beneficial to tech companies. As of 7/1/2014, companies that are engaged in manufacturing or R&D within the state can take advantage of a sales/use tax exemption on qualified purchases of equipment and machinery. The equipment and machinery must be used primarily for any stage of the manufacturing process or for R&D purposes. Companies can save approximately half of the sales tax on qualified purchases depending on the local municipality. Qualified companies are those under a manufacturing NAICS code (3111 to 3399) and biotech companies (541711 and 541712). While this benefit appears relatively straightforward, as with all incentives, the key will be maintaining proper documentation!

About Monika Miles

Miles Consulting Group is a Silicon Valley firm which helps companies doing business across state lines with multistate tax needs—income and sales tax. They assist clients that are selling in multiple states (retail, e-commerce), preparing for either side of mergers/acquisitions, interested in maximizing tax credits and incentives or requiring audit assistance. Founder, Monika Miles, regularly assists ASL clients that have multi-state tax issues. Miles Consulting can be reached at www.milesconsultinggroup.com or 408-266-2259.