The new window of opportunity opens January 2nd and closes January 22nd.
If your company will hire more people or buy equipment in 2018, the Cal Competes tax credit may be for you. This big-dollar tax credit is awarded to California companies with plans to add headcount in California. It’s a competition and companies that win usually have three or more of these characteristics:
1) They Pay Well
The size of the credit is based on the size of the salaries you pay. Winning companies generally offer salaries more than $40,000 per year. The higher the average salaries are (no bonuses can be factored in), the higher your tax credit will be if you win. Low salary employers can win, but only if they have other factors in their favor.
2) Manufacturers and Tech
Manufacturers and technology companies (especially tech manufacturers), who plan to expand, have an advantage over other companies. For example if your company develops software, fabricates and/or assembles products, or produces food, you have an advantage.
3) Economically Distressed Area
If you’re located in an economically depressed area (ie: Stockton, Imperial Valley, San Bernardino, Central San Joaquin Valley), you have an advantage over companies in more robust economic areas. Companies in economically depressed areas often pay employees less than $40K/year, but given the alternatives, the state can still view these as “good salaries.” In one case DCI won a six-figure credit for a company in the Imperial Valley paying just over minimum wage, because much of the surrounding area was nothing but farms and 7-Elevens.
4) Unique for California
When it comes to getting to state tax credits, if your company is unique in what it does you will have an advantage over companies in the state that are doing the exact same thing. If your company has competition but it is chiefly outside the state or outside the nation, then its uniqueness in California will help justify your receiving an award.
5) Don’t Ask for Too Much
Companies that ask for too much tax credit don’t get a “counter offer.” They simply get refused. You also don’t want to ask for too little and leave money on the table – a common mistake for companies that do win. You also don’t want to reach so high that you eliminate whatever chance you might have had. If this sounds like “The Price is Right,” then you’ve got the right idea.
6) Use a Pro
I admit this sounds self-serving but in some previous Cal Competes application periods, the non-success rate has been over 90%. Most of the unsuccessful companies had staff with no previous success with Cal Competes or understanding of how to position the company fill out paperwork and send it in. Using a CPA with limited prior success is not necessarily better, and the CPA might charge whether you are successful or not, so this may be time and money out the door. A firm like DCI, with specialized tax credit expertise and a track record for success is more likely to get you an award. There is no risk, or lost money and time, because fees are strictly based on successfully getting awarded the credit.
7) Get the Timing Right
You cannot get the tax credit retroactively for expansion you’ve already paid for. You have to be awarded credit first and then all the hiring you do and the equipment and buildings you buy thereafter can count towards your credit if you win.
There are just a few windows in the year when you can apply and if you miss one window you forfeit the credit on any additional hires you make after that window closes and before the next one opens. Completing the applications at each phase in a way that advantages you over other companies requires timely, focused attention.
Don’t Miss the January Deadline. The window opens January 2nd and closes January 22nd. Contact DCI Solutions (www.dcisolutions.net) at (888) 395-0809 to discuss how this specialized tax credit can combine with other specialized tax credits and cost savings to increase your long term corporate value by potentially millions of dollars.