California Economic Development Directory

CALIFORNIA State Incentives

ENTERPRISE ZONES: Businesses located within the boundaries of an EZ are eligible for tax credits. The first major EZ tax credit is equivalent to the sales and use tax paid on the first $1,000,000 of Personal Income Tax or Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts. The second major EZ benefit takes the form of a credit equal to a percentage of the wages paid to a qualified employee. The credit is based on the lesser of the actual hourly wage or 150 percent of the state-established minimum wage. The credit is provided over a five-year period with 50 percent of the wages creditable in the first year of employment, 40 percent the second year, 30 percent the third year, 20 percent the fourth year, and 10 percent the fifth year. If the employee stays with the company for the entire 5-year period, the company receives credits totaling nearly $37,440 per qualified employee. If the employee is terminated prior to 270 days of employment, the credit is recaptured.

LAMBRA zones are a companion to EZs. The most notable differences in incentives include enhanced equipment purchase eligibility under the sales and use tax credit; an annual wage limitation of $2 million per year under the hiring tax credit; and redefinition of qualified employees to include displaced military or civilian employees of the former base.

RESEARCH AND DEVELOPMENT TAX 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 percent credit against their bank and corporation tax liability for qualified in-house research expenses, and a 24 percent credit for basic research payments to outside organizations. This tax credit is applied to a tax payer’s state tax liability. The federal tax credit may be collected for the same research activity. 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. The research activity must be conducted in California to qualify for the credit.

EMPOWERMENT ZONES: The federal government has designated sections of several California communities as Renewal Communities, Empowerment Zones and Enterprise Communities (RC, EZs and ECs). The cities of Fresno, Los Angeles, Santa Ana, San Francisco, Orange Cove, Parlier, and the counties of Imperial and Riverside have designated RCs, EZs or ECs. Benefits to businesses locating or expanding in these areas include:

• Employer wage credits of 20 percent for the first $15,000 in wages paid to an individual who resides in the EZ up to $3,000.
• Section 179 deduction allowing businesses to deduct all or part of the cost of eligible property (machinery, furniture, equipment, computers) up to an additional $20,000.
• Availability of low interest rate tax-exempt private activity bonds to finance industrial projects typically between $1-3 million (some zones have substantially larger limits), often with fewer restrictions than those normally associated with tax-exempt bond financing.
• Possible city business tax exemption.
• Postponement of capital gains on the sale of EZ/EC assets.

NET OPERATING LOSS CARRYOVER: California tax law allows businesses that experience a loss for the year to carry this loss forward to the next year in order to offset income in the following years. New businesses can carry over 100 percent of their losses for 20 years if the loss is in their first year of operation.

FOREIGN TRADE ZONES (FTZs): Secured areas legally outside of U.S. customs territory usually located in or near customs points of entry that allow entry of foreign or domestic merchandise without formal customs entry or government excise taxes. California FTZs are located in San Francisco, San Jose, Long Beach, Oakland, West Sacramento, San Diego, Palmdale, Los Angeles, Port Hueneme, Merced/Madera/Fresno counties, Stockton, Palm Springs, Santa Maria, Victorville, Eureka and Imperial, Butte and Riverside counties.

The NEW MARKETS TAX CREDIT (NMTC) Program permits taxpayers to receive a credit against federal income taxes for qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year period. In each of the first three years, the investor receives a credit equal to 5 percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is 6 percent annually.

FILM AND TV PRODUCTION TAX CREDIT: For the next five fiscal years, the California Film Commission will certify and administer a tax credit for new production in the state or production that returns to California from another state. The credit will be equal to 20 percent of expenditures in the state related to the film production, and 25 percent for production returning to the state and independent films. It will be capped at $100 million per year.

WORK OPPORTUNITY TAX CREDIT: The amount of the tax credit varies by target group. The tax credit for target groups A, B, C, D, E, G and H is 40 percent of qualified first year wages up to $6,000 if the individual is retained for at least 400 hours. If retained less than 400 hours but at least 120 hours a 25 percent tax credit is available on qualified first year wages up to $6,000. The exception is target group F (summer youth). The maximum amount of wages to which the tax credit may be applied shall not exceed $3,000.

The tax credit for target group I, long-term family assistance recipient, is 40 percent of first year qualified wages up to $10,000 and 50 percent of second year qualified wages up to $10,000. The individual must be retained at least 180 days or 400 hours. In certain circumstances you may be able to claim either the 40 percent of $6,000 tax credit or the 40 percent of $10,000 tax credit.

CALIFORNIA EMPLOYMENT TRAINING PANEL (ETP): Assists employer efforts to effectively train workers and maintain skilled workforces capable of responding to changing business and industry needs. Employers make decisions about their own training programs. ETP job training funds are available to all CA manufacturing companies, companies that face out-of-state competition and businesses that are 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 nanotechnology, biotechnology and life sciences, goods movement and transportation logistics, aerospace and defense, advanced IT services, multimedia/entertainment, healthcare, construction, agriculture and renewables.

INDUSTRIAL DEVELOPMENT BONDS (IDB): 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. IDBs can be issued by the California Infrastructure & Economic Development Bank (I-Bank), cities, counties and joint powers authorities and do not constitute an obligation of either the state or the local government issuer.

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.

SALES & USE TAX EXEMPTIONS FOR CLEAN TECH MANUFACTURING (CAEATFA): The goal is to create a strong, new clean-tech industry within California that reduces green house gas emissions and creates new, long-term high value-added jobs. Approved businesses would be able to make tax-exempt clean-tech manufacturing equipment.

POLLUTION CONTROL FINANCING: The California Pollution Control financing Authority (CPCFA) provides tax-exempt bond financing for pollution control projects. Their Tax-Exempt Bond Financing Program gives CA businesses help with acquisition or construction of qualified pollution control, waste disposal or waste recovery facilities, and the acquisition and installation of new equipment.

They also offer a Sustainable Communities Grant and Loan Program that assists communities implementing “smart growth strategies,” and the CalReUSE Program that offers low-interest, forgivable loans to assist public and private partners in redeveloping contaminated “brownfields.” The California Capital Access Program (CalCAP) helps small-business borrowers obtain loans.

ALTERNATIVE & RENEWABLE FUEL & VEHICLE TECHNOLOGY PROGRAM: AB 118 authorizes the Energy Commission to develop and deploy alternative and renewable fuels and advanced transportation technologies to help attain the state’s climate change policies. The statute allows the Energy Commission, with an annual program budget of approximately $100 million, to use grants, loans, loan guarantees, revolving loans and other appropriate measures to support projects that:

• Develop and improve alternative and renewable low-carbon fuels.
• Optimize alternative and renewable fuels for existing and developing engine technologies.
• Produce alternative and renewable low-carbon fuels in California.
• Decrease, on a full fuel cycle basis, the overall impact and carbon footprint of alternative and renewable fuels and increase sustainability.
• Expand fuel infrastructure, fueling stations and equipment.
• Improve light-, medium-, and heavy-duty vehicle technologies.
• Retrofit medium- and heavy-duty on-road and non-road vehicle fleets.
• Expand infrastructure connected with existing fleets, public transit and transportation corridors.
• Establish workforce training programs, conduct public education & promotion and create tech centers.

SMALL BUSINESS LOAN GUARANTEE: Allows a business to not only acquire a loan it could not otherwise obtain, but to establish a favorable credit history with a lender so that the business may obtain future financing on its own. Eligible applicants include any small business as defined by the U.S. Small Business Administration (typically businesses that employ one hundred people or less). Proceeds must be used primarily in California and for any standard business purpose beneficial to the applicant’s business, such as expansion into new facilities or purchase of new equipment. Guarantees can cover up to 90 percent of the loan amount, with the guaranteed portion of the loan not exceeding $500,000. The guaranteed percentage varies and the term of the loan guarantee may extend up to seven years:

MARKET DEVELOPMENT & EXPANSION GRANT PROGRAM: The Dept. of Conservation provides up to $20 million annually to increase beverage container recycling in CA and to improve processing and manufacturing with recycled aluminum, glass and plastic. It encourages projects that advance environmentally and economically sustainable containers, packaging and other products. The program supports R&D of new technologies and helps reduce greenhouse gas emissions by strengthening “green” industries in the state.

BEVERAGE CONTAINER RECYCLING GRANT PROGRAM: The Dept. of Conservation provides funding annually in the form of grants for beverage container recycling and litter reduction programs. Projects typically sought include those that provide convenient beverage container recycling opportunities in CA; however, the focus may change with each new solicitation. Grant proposals are evaluated on criteria set forth in each year’s Grant Solicitation. There are no restrictions on who can apply for the grants.

BEVERAGE CONTAINER RECYCLING INFRASTRUCTURE LOAN GUARANTEE PROGRAM: The Dept. of Conservation provides continuous funding in the form of loan guarantees for up to $10 million for capital expenditures for new infrastructure that would add recycling capacity, re-use and/or remanufacture beverage container materials into new products. Uses: equipment costs, building and facilities, rent and utilities, travel, contractual services, salaries, and benefits, other operating and non-operating costs. Private companies, non-governmental organizations, governmental agencies, manufacturers and trade associations are eligible.

RECYCLING MARKET DEVELOPMENT ZONE (RMDZ) REVOLVING LOAN PROGRAM: Provides direct loans to eligible businesses that manufacture recycled raw materials, produce new recycled products or that reduce waste from the manufacture of a product. These loans promote market development for post consumer and secondary waste materials and divert waste from non-hazardous California landfills. Funds may be used to acquire equipment, make leasehold improvements, purchase recycled raw materials and inventory or acquire real property. Applicants may borrow a maximum of 75 percent of the cost of a project or $2 million. Terms are generally 10 years and low interest rates are fixed.

SBA (Small Business Administration) 504 LOANS: Marketed, processed, closed and serviced by Certified Development Corporations (CDC) that provide up to 90 percent of fixed-asset financing costs. The second mortgage, long-term, fixed-rate financing allows banks to participate in business expansion by reducing risk exposure. The benefit to the borrower is a lower down payment requirement (10 percent) and a longer-term, fixed-rate loan, which translates into reduced monthly payments. The maximum SBA debenture is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA except for “Small Manufacturers” which have a $100,000 job creation or retention goal. Eligible 504 loan uses include the purchase of land, existing buildings, new construction and the acquisition of machinery and equipment with a 10-year useful life.

The private sector participant finances 50 percent of the project cost and takes a first lien on assets pledged as collateral. The SBA takes a second lien on assets and finances up to 40 percent of the project cost, up to $1 million in some cases. Borrowers inject 10 percent in the form of cash or equity in real estate.

USDA RURAL DEVELOPMENT: The U.S. Department of Agriculture (USDA) sponsors “Business & Industry” guaranteed loans in rural communities and guarantees up to 80 percent on loans from $750,000 to $5 million and up to 70 percent on loans up to $10 million. Terms are typically seven years for working capital, 15 years on equipment and 30 years on real estate. Lenders negotiate their own fees and the USDA charges 2 percent of the guaranteed amount as a one-time fee. Most types of businesses qualify but the project must be in a rural area beyond the urbanized periphery surrounding a city of 50,000 or more.

LOCAL REVOLVING LOAN FUNDS (RLF): The U.S. Economic Development Administration, Dept. of Agriculture & Housing and Urban Development’s Community Dev. Block Grant Program typically capitalize RLFs. Their proceeds often provide critical capital to deserving small businesses, which in turn, provide needed jobs in urban and rural areas throughout CA. Certain businesses may be targeted for assistance and most often the loan will be provided as part of an overall package in the form of gap financing. RLFs are guided by policies that outline loan or loan guarantee sizes, uses, rates, terms, special conditions and participation levels.

For a complete list of California incentives, visit: www.business.ca.gov/RelocateorExpand/BusinessIncentives.aspx