California Direct Financial Incentives
California’s economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment.
- Area Development Research Desk
Corporate Taxes & Incentives Guide
- California is rising to the challenge of today’s difficult economy. A quick review of key initiatives And actions make it clear that California has entered a new era for business investment and job creation:
- The legislature passed comprehensive workers’ compensation reforms (SB 899, 2004), reducing employer costs by billions of dollars.
- California voters passed proposition 71, the stem cell research initiative that established $3 billion in obligation bonds to finance up to $350 million a year for research and development of stem cells.
- California’s strategic growth plan forecasts an ambitious expansion of California’s highways, freeways, railways, aviation, and electrical infrastructure, investments that will create immediate jobs and pave a foundation for long-term economic growth.
- Public-private partnerships (p3) and design-build authority are saving businesses time and money. By tapping into private money for needed transportation projects, California creates more jobs and investment opportunities at greater savings to the taxpayer.
- Sweeping legislation reformed employer litigation and Californians overwhelmingly approved lawsuit limitations.
- AB 32, California’s landmark global warming bill, establishes a first-in-the-world comprehensive program to achieve cost-effective reductions in greenhouse gases through energy conservation and renewable energy production, effectively making California a hotbed of renewable energy and energy efficiency innovations. In November 2010, voters overwhelmingly reaffirmed California’s commitment to clean energy by rejecting a ballot measure challenging AB 32.
- The California million solar roofs initiative helps residential and commercial utility users install and operate solar panels on their property, aiming to create one million solar roofs in California by 2018.
- Streamlining environmental permits will generate jobs and economic activity related to the construction, architectural, materials, and finance industries. The California Air Resources Board is working with regional planning agencies to simplify the CEQA review process for thousands of new projects that reduce greenhouse gases.
- California provides greater flexibility for businesses to leverage the advantage of tax credits. Effective January 2010, businesses are able to share business tax credits among a related group of affiliate or subsidiary companies (known as unitary utilization). This allowance provides California companies the freedom to allocate tax credits within their family of companies.
California offers unparalleled value to companies seeking the optimal business location. Our critical mass of business services, intellectual capital, financial acumen, transportation systems and market access enhance the corporate mission and make California the most efficient place to do business in the world. Why invest or create jobs in California? Because the long-term outlook for our economy and business climate is as sunny as the legendary climate.
Innovation and Intellectual Capital
California leads the nation in trends and innovation. New ideas are a way of life here. Californians have a strong need to express themselves and a long history of free thinkers conceiving the inconceivable. California supports creativity with a superior educational system and job training that produces an unrivaled and highly skilled labor force. Over 2.4 million students are enrolled in 416 public and private colleges and universities with over 200,000 college graduates per year. California possesses the nation’s highest concentration of engineers, scientists, mathematicians and skilled technicians. Seven of the top 25 engineering schools are in California. Fifty-three California companies are ranked among Fortune Magazine’s prestigious FORTUNE 500 list of America’s largest corporations. California is a major center for design of automobiles, furniture, apparel, software, electronics, telecommunications services, computers and semiconductors. California boasts nearly 651 members of the National Academy of Sciences and 111 Nobel Laureates.
Nation’s Leading High-Tech State
California’s culture embraced technology as part of its founding DNA. Technological innovation powers the California economy. We’re home to over 930,000 high-tech workers, larger than any other state, and 16% of all U.S. high-tech workers. High-tech exports totaled $48 billion, ranked first nationwide, and high-tech goods represent nearly 44% of the state’s annual exports. California leads the nation in several strategic high-tech industry segments, comprising between 20-60% of U.S. market share in electronic components, commercial aerospace, medical instruments, biotechnology and transportation. California has been the #1 manufacturing state since 1977. In many ways, California’s technology fortune has driven the nation’s economic future. California leads the nation with 4 of “The top ten rankings for the preeminent high-tech metros in North America”, a study conducted by the Milken Institute. In addition to leading the country in high-tech, California also leads in `Green Tech’ and `Green Collar Jobs.’ California is home to many types of renewable energies. Solar, wind and biodiesel are just a few of the technologies that are being researched, developed, and manufactured in the Golden State. California also topped the 2010 and 2011 CNBC’s America’s Top States for Business Rankings for Technology and Innovation
Research, Capital and Access to Financial Resources
California leads the nation in research and development (R&D) and benefits from receiving half of the nation’s venture capital (VC) investment. In 2009, California companies received more than $8.8billion or 50% of all VC dollars invested in the U.S. Top sectors receiving VC funding are software, telecommunications, biotechnology, medical devices and semiconductors. California is home to more than 2,000 companies and more than 100 universities and private nonprofit research organizations that are engaged in biomedical R&D and manufacturing. The biomedical industry is one of the most recession resilient sectors in the state’s economy, accounting for 274,000 California jobs. Among the state’s high-tech industries, only the information technology sectors (computer and Internet-related services and computer and peripheral equipment industries) employ more people than the biomedical industry. California ranked 1st in “Access to Capital” in CNBC’s America’s Top States for Business Rankings for 2010 and 2011. California’s biotech industry was ranked #1 by Business Facilities Magazine; they call the Golden State, “the birthplace of biotech.” In 2009, California’s biomedical companies completed 252 deals valued at $2.6 billion, down from 302 deals worth $3.5 billion in 2008 but still attracting more venture capital investment than any other sector in the state. California received the greatest amount of National Institutes of Health (NIH) funding of any state, receiving 7,228 grants totaling $3.15 billion in 2008. California’s share of funding was approximately 40% more than the second largest grantee, Massachusetts, which received $2.2 billion. California ranks first in nanotechnology companies, holders of over 200 patents. More research and VC funding for this emerging industry is invested here than anywhere else. The Silicon Valley has established a Blue Ribbon Task Force on Nanotechnology and the National Science Foundation predicts industry revenue will reach $1 trillion by 2015. R&D expenditures at universities and colleges totaled $6.49 billion in 2006, while Industrial R&D exceeded $58.4 billion, ranked first in the nation. California offers a 15% R&D tax credit for inhouse research and 24% for contract research, the highest in the nation.
Eighth-Largest Market in the World
California has the largest, most robust and most resilient economy in the United States. The Golden State produced $1.9 trillion in goods and services in 2010, a 1.8% increase over 2009. Our economy represents 13% of United States gross domestic product. Our population exceeded 37.3 million (2010 census) and is growing dramatically in size and diversity. It represents 12% of U.S. population, one out of every nine persons. California is the number one state for attracting foreign direct investment. The state has the largest consumer markets for high technology, biotechnology, food and agriculture, apparel, entertainment and is a bellwether for the nation’s economy. Currently, only three minority markets at the state level exceed $100 billion in buying power annually, and two of them are in California. Hispanic buying power comprises $228 billion in California and California’s Asian consumer market totals $150 billion.
California is globally connected with world-class infrastructure. More than 15,000 miles of highways and freeways carry billions of tons of freight per year. Twelve cargo airports carry more than 3 million tons of freight per year and California leads the nation with eleven cargo seaports. The ports of Los Angeles (#1), Long Beach (#2), and Oakland (#5) are among the busiest in the country.
California has 17 Foreign Trade Zones (FTZ) which allow tenants to delay or forgo import and export duties on goods and raw materials until they enter U.S. commerce. If the goods are warehoused in an FTZ, then exported to other countries, no duties are paid at all. In addition, California has 42 Enterprise Zones (EZ) and 8 Local Agency Military Base Recovery Areas (LAMBRA).
Twenty-five freight railroads in California operate over 5,000 miles of track to form an integral part of the global transportation network. Mixed freight, food, glass and stone, chemicals and primary metal products make up the bulk of the originated and terminated tonnage carried by the extensive railroad network.
California is a global export leader with over $134 billion in sales of goods and services. International-related commerce accounts for a large percentage of the state’s economy. Exports from California to 228 foreign markets accounted for 11% of total U.S. exports. California’s top trading partners are Mexico, Canada, Japan, China and South Korea. California trade and exports translate into high-paying jobs for over one million Californians.
Californians lead an enviable life that for the last five years ranks #1 in the Harris Poll asking respondents to name the number one most desirable state in which to live. Residents enjoy one of the highest life expectancies in the country, a median age of 34.7 years and receive the best health care. Californians enjoy natural beauty right in their backyards, featuring towering forests, snow-capped mountains, beautiful beaches and serene deserts. The Golden State is home to over 1,000 golf courses, 45 snow resorts, 21 professional sports teams, 31 national parks, 280 state parks, 134 wilderness areas, 1,100 miles of coastline, and over 900 wineries.
California leads the nation in tourism with over 200 million visitors and $95.1 billion in revenues in 2010.
In an effort to harness and enhance California’s innovative spirit, the State of California launched a forward-thinking Innovation Hub (iHub) initiative in early 2010. The Governor’s iHub initiative seeks to improve the state’s national and global competitiveness by stimulating partnerships, economic development and job creation around specific research clusters throughout the state.
What is an iHub?
- iHubs are operated by local collaboratives comprised of local government entities, universities, businesses, venture capitalist networks, economic development organizations and non-profit organizations.
- Specifically they target young, innovative companies that have been in business for less than eight years in a technology cluster identified by the consortium.
- They are anchored by at least one major university or research center/institution, at least one economic development corporation and typically contain assets such as research parks, technology incubators, universities, community colleges, business accelerators and federal laboratories.
- Certified iHubs are supported by a UC Institute for Science and Innovation.
- iHubs are designated for a period of five years.
- The growing statewide network of innovation hubs provides the participants with an unprecedented opportunity to interact and share best practices on a scale which looks beyond regional boundaries.
- By providing a direct link to the Governor’s Office of Business and Economic Development and encouraging the development of a stronger relationship with local government entities within various regions, the initiative helps to remove barriers to public-private collaboration needed to commercialize technology.
- The application process forces the formation of strong regional partnerships among all of the players involved in the commercialization of innovation in a given region by insisting that a competitive application includes at least one representative from all of the valued entities.
- The open communication channels created through the initiative allow the iHubs to leverage assets (national laboratories, technology incubators, business accelerators) in and among regions.
- The state-issued designation draws attention to the clusters that exist within a given region as well as the innovation happening within that region, and increases the competitiveness of the hubs both when applying for grant opportunities on an individual basis and as a consortium.
- A mature iHub will be able to match-up players at business.ca.govvarious stages of the innovation process (e.g. start-up companies and venture capitalists), thereby providing an innovation platform for research clusters, start-up companies, government entities, business groups and venture capitalists.
- The iHub network provides an unprecedented opportunity for experts in the innovation arena to speak as a united force when advocating for policy and legislation on both the state and federal levels.
GO-Biz/California Business Investment Services Unit
California Business Investment Services (CalBIS) assists companies and investors interested in employing Californians. Major state-level incentives are described in this section. Note that many incentives are site driven and/or negotiated with local government on a case-by-case basis or under an existing local economic development policy. As needed, “A-Teams” comprised of state and local officials are assembled to bring public and private resources together to assist investors or companies interested in the Golden State.
Franchise Tax Board – New Employment Credit
The New Employment Credit is available for business located in newly identified census tracts, as well as the former Enterprise and LAMBRA Zones. The New Employment Credit (NEC) is available for each taxable year beginning on or after January 1, 2014, and before January 1, 2021, to a qualified taxpayer that hires a qualified full-time employee on or after January 1, 2014, and pays or incurs qualified wages attributable to work performed by the qualified full-time employee in a designated census tract or economic development area [herein referred to as a designated geographic area (DGA)], and that receives a tentative credit reservation for that qualified full-time employee. In order to be allowed a credit, the qualified taxpayer must have a net increase in the total number of full-time employees in California.
Board of Equalization – (Partial) Sales Tax Exemption
A new law beginning on July 1, 2014 allows manufacturers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases. To be eligible under this law, you must meet all three of these conditions:
1. Be engaged in certain types of business, also known as a “qualified person.”
2. Purchase “qualified property.”
3. Use that qualified property for the uses allowed by this law.
Governor’s Office of Business and Economic Development – California Competes Credit
The Governor’s Office of Business and Economic Development (GO-Biz) administers the California Competes Tax Credit. It is an income tax credit available to businesses that want to come to California, or stay and grow in California.
Franchise Tax Board – California Research Credit
Designed to encourage businesses to increase their basic research and development activities in California, the research and development tax credit allows companies to receive a 15% credit against their bank and corporation tax liability for qualified in-house research expenses, and a 24% credit for basic research payments to outside organizations. Qualified research expenses generally include wages, supplies and contract research costs. To qualify, a taxpayer’s 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 Film Commission – Film & Television Production Credit
The California Film Commission offers a tax credit incentive program to qualified motion pictures. $100 million has been allocated annually beginning in fiscal year 2009-2010 through 2016-2017 on a first-come first-served basis. The Program allows a 20% tax credit for qualified production related expenses to a taxpayer against State income taxes. The program offers a special 5% additional tax credit bonus for those TV series that return from out of state and to “independent films”. A qualified taxpayer may, in lieu of claiming the credit, apply the credit amount against sales and use taxes.
California Alternative Energy and Advanced Transportation Financing Authority – (Full) Sales Tax Exclusion
The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides a sales and use tax exclusion for advanced manufacturers and manufacturers of alternative source and advanced transportation products, components or systems. The STE Program was originally authorized by Senate Bill 71 (Padilla, 2010), which allowed CAEATFA to provide a sales tax exclusion for manufactures of alternative source and advanced transportation products. The STE Program was recently expanded by Senate Bill 1128 (Padilla, 2012) to include advanced manufacturing projects.
Job Referral and Placement
California’s Employment Development Department (EDD) works with businesses to access the state’s entire workforce, as well as to coordinate recruitment activities with local community-based job training and placement organizations called “One-Stop Career Centers.” EDD, in cooperation with the One-Stop network, will help to customize and deliver pre-employment and on-the-job training; recruit, screen, and assess workers for specific skills sets; and assist employers to maximize California Enterprise Zone and federal hiring tax credits.
Also, through its CalJOBS system, EDD’s Job Service offers a statewide network that provides an instant link between employers and job seekers anywhere in California. This network provides employers with quick access to the largest available pool of job-ready applicants. SM system, EDD’s Job Service offers a statewide network that provides an instant link between employers and job seekers anywhere in California. This network provides employers with quick access to the largest available pool of job-ready applicants.
Learn more here
California Employment Training Panel
A skilled workforce is key to a company’s ability to remain competitive. The Employment Training Panel (ETP) assists employer efforts to effectively train workers and maintain skilled workforces capable of responding to changing business and industry needs. ETP-funded training works because employers make decisions about their own training programs: training investments help companies become more profitable, and performance-based contracting ensures success. eTP job training funds are available to all California manufacturing companies, companies that face out-of-state competition and business are and expanding or relocating to California from other states or countries. In addition to the manufacturing industry, and California’s small business employers, the Panel also prioritizes:
- Biotechnology and Life Sciences
- Goods Movement and Transportation Logistics
- Aerospace and Defense
- Advanced Technology Information Services
For more information regarding ETP, visit their website atwww.etp.ca.gov or e-mail them at [email protected]
Industrial Development Bonds
Industrial Development Bond (IDB) financing maybe the most competitive financing option available for the acquisition of manufacturing facilities and equipment. IDBs provide a method for middle market manufacturers to access the private capital markets at tax-exempt rates. The IDB interest rate is significantly lower than bank financing because the interest paid to the investor is exempt from state and federal income tax, resulting in substantial savings to the borrower, depending on the amount financed.
The IDB issuance process can be pursued concurrently with the bank credit approval process. The entire process can be easily completed within 90 days and from the borrower’s standpoint should not be much different than conventional financing. The most frequent source of delay is, in fact, the letter of credit bank’s credit approval process.
The financing structure is fairly straightforward. A governmental entity will issue bonds and loan the proceeds to the company. The company’s obligation to repay the loan is secured by a direct-pay Letter of Credit from a bank rated ‘A’ or better. The interest rate on the bonds is adjustable and is reset weekly by the underwriter in its capacity as remarketing agent.
IDBs can be issued by the California Infrastructure and Economic Development Bank (I-Bank), cities, counties, and joint powers authorities. IDB s do not constitute an obligation of either the state or the local government issuer.
The issuer’s staff and the borrower’s finance team of experienced professionals assist the business through each stage of the process. The finance team usually comprises a bond counsel, financial advisor (who assists in packaging and structuring the financing), letter of credit bank, underwriter, and trustee.
- $10 million: maximum amount that can be borrowed as a tax-exempt industrial development bond. $10 million: maximum amount that can be borrowed as a tax-exempt industrial development bond.
- $20 million: limit on the company’s capital expenditures for the three years before and after the bond issuance (intended to target the program to small and medium-sized manufacturers). $20 million: limit on the company’s capital expenditures for the three years before and after the bond issuance (intended to target the program to small and medium-sized manufacturers).
- Low interest rate: 20-30% below conventional financing rates. Low interest rate: 20-30% below conventional financing rates.
- Primary business activity: manufacturing, processing, or fabrication. Examples include but aren’t limited to: meat processing, vegetable dehydration, machine fabrication, car/truck parts manufacturing, wine-making, and lithographers. Distribution is not an eligible use. Primary business activity: manufacturing, processing, or fabrication. Examples include but aren’t limited to: meat processing, vegetable dehydration, machine fabrication, car/truck parts manufacturing, wine-making, and lithographers. Distribution is not an eligible use.
- Primary use of bond funds: acquisition, construction, rehabilitation and equipping. Primary use of bond funds: acquisition, construction, rehabilitation and equipping.
- Comprehensive funding: the funds can be used for construction and/or takeout to finance land, buildings and equipment. Comprehensive funding: the funds can be used for construction and/or takeout to finance land, buildings and equipment.
- No prepayment penalty. No prepayment penalty.
- Repayment: if the company qualifies for a conventional bank loan, it should be able to qualify for a bank Letter of Credit. Repayment: if the company qualifies for a conventional bank loan, it should be able to qualify for a bank Letter of Credit.
- Federal and state requirements: because the bond financing provides a ‘benefit’ to business, borrowers must meet certain public benefit criteria as well as general eligibility requirements.The project financed by the bonds must meet certain public benefit criteria established by the California Debt Limit Allocation Committee (CDLAC) located in the California’s Treasurer’s Office, which include, among other things, the creation or retention of jobs. The IDB financing process can generally be completed within 150 days. Federal and state requirements: because the bond financing provides a ‘benefit’ to business, borrowers must meet certain public benefit criteria as well as general eligibility requirements. The project financed by the bonds must meet certain public benefit criteria established by the California Debt Limit Allocation Committee (CDLAC) located in the California’s Treasurer’s Office, which include, among other things, the creation or retention of jobs.The IDB financing process can generally be completed within 150 days.