Category Archives: California Tax Incentives

State Tax Deduction Limit? California Fights Back.

What’s good for the goose….

By now many of us in California have contemplated our fate regarding how the tax reform act passed by Congress last month will likely hurt Californians as a result of the federal limit on the state and local tax deduction for individual taxpayers.

In an effort to mitigate the limit of this deduction for Californians, state lawmakers have quickly looked to alternatives.

New Tax Plan – limited deduction

For residents of California and other high tax states, a major item of concern in the tax act is the cutback of deductions for state and local taxes (SALT). Taxpayers will now be able to deduct only up to $10,000 in SALT, including property taxes.   According to this recent LA Times article, limiting the SALT deduction could affect as many as 6 million Californians. California taxpayers accounts for almost 20% of all SALT deductions, which is the highest state in the nation.  Other states with large amounts of SALT deductions include New York, New Jersey and Connecticut, perhaps not coincidentally – all “blue” states.

How to mitigate the problem?

One option proposed last week by Senate President pro Tempore Kevin de Leon (D – Los Angeles), would be to recast state and local taxes as charitable contributions, which remain fully deductible under the GOP tax act.   SB227 (known as the “Protect California Taxpayers Act”) would allow California taxpayers to make a charitable donation to a government entity, the California Excellence Fund, in the amount of their state taxes.  They would then receive a dollar for dollar tax credit on their CA tax return in the amount of the donation.  (For example, a taxpayer owing $15,000 in property taxes, might pay this amount to the Excellence Fund. The taxpayer then gets a tax credit for the entire $15,000 on their CA return. On the federal tax return, the taxpayer correctly classifies this amount as a charitable contribution, which is not limited to the $10,000 SALT rule.  So, by essentially reclassifying the property tax as a contribution, the taxpayer still gets the full deduction for the entire $15,000, rather than just $10,000 on their federal return.)

Playing Devil’s Advocate?

So, that all sounds good. But will the IRS allow it?  Will Congress?

What constitutes a charity? The Internal Revenue Service (IRS) and federal courts have ruled that government entities can qualify as charities for the purpose of the charitable deduction, even when the donor receives a full state or local tax credit in return.  California and other states already have similar programs in place. For example, CA has a College Access Fund, which grants a 50% tax credit for contributions to the Cal Grants Program, which aids low-income college students.  17 additional states use a similar model to fund private education.

While the proposal is certainly creative, and has some defendable history behind it, we recommend to be cautiously optimistic about its ultimate passage in the state and then whether Congress will find a way to shut it down by passing further clarifying legislation.

For more information regarding this act published by the San Joe Mercury News, click here.

Stay tuned for further updates!

If you have any questions, please don’t hesitate to contact us at info@milesconsultinggroup.com. We are happy to help with all of your tax needs.

 

Update on the CA Competes Tax Credit

Read here for an update on the ongoing CA Competes Tax Credit.

As the mainstream media wonders where Amazon will locate its HQ2, many states are in the news touting their credits and incentives benefits to draw in company expansions.  We thought it would be a good time to revisit the California Competes Tax Credit.  As we’ve reported before, the credit has been available since January 2014 and isn’t scheduled to sunset until 2025. Every year, the state earmarks funds for the program of approximately $200 million, and companies compete for the funds during three application periods per year.

The CA Competes Tax Credit is an income tax credit available to companies who want to expand their business in CA. (They can be in state businesses expanding or businesses new to the state.) Companies that apply for this credit must submit applications to the state detailing increased investment in CA. Tax credit agreements are negotiated by GO-Biz and approved by a statutorily created “California Competes Tax Credit Committee.” The GO-Biz is a board consisting of representatives from the Governor’s office of Business and Economic Development. Not all companies requesting money receive it. There is a subjective process for allocating the funds annually.

 

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Reminder to CA Manufacturers: Sales Tax Exemption!

Does your manufacturing equipment qualify for the CA partial exemption? Read this article to find out more.

Remember when the California Manufacturing Sales Tax Exemption first came into fruition, on July 1, 2014? It seems like so long ago. But maybe it’s a good time to remind companies about this useful partial exemption available to manufacturing companies.

What exactly is this exemption?

It allows certain manufacturers and biotech companies to exempt a portion of California sales and use tax on purchases of qualified equipment used in manufacturing and R&D (research and development).

This exemption went into effect July 1, 2014 and applies to any sale, purchase, and lease of qualified tangible personal property on or after this date.  The exemption was formerly set to sunset on July 1, 2022. However, the Governor of California recently signed Assembly Bill (A.B.) 398, which extends the exemption for manufacturing and research and development equipment to July 1, 2030. The bill has also expanded the exemption to include additional companies (see below).

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FOCUS ON CALIFORNIA

Golden Gate Bridge in San Francisco, California

This month, we travel back to the mainland (and the home state of Miles Consulting Group) to the 3rd largest state in the country and the 6th largest economy in the world- the Golden State of California! With its sunny and dry coastal climate year round (except for January 2017!) and easy access to the ocean and mountains, California has always been seen as an ideal resort destination. In the 1960s, popular music groups such as The Beach Boys promoted the image of Californians as laid-back, tanned beach-goers – which, of course we all are!

California is home to the second most populous city in the United States- Los Angeles, which is home to the Hollywood entertainment industry. San Francisco, 400 miles to the north, is where you will find the Golden Gate Bridge, Alcatraz Island and cable cars.

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New: Important California State Tax Credits and Incentives Updates

side view of a piggy bank with the flag design of California.

Don’t miss these California state tax credits and incentives updates!

Are you trying to pursue California’s state tax credits and incentives? If so, there are three recent updates you may want to know about:

California Competes State Tax Credit and Online Reporting Requirements

As of January 1, 2017, the Governor’s Office of Business and Economic Development (Go-Biz) will be required to report more detail about businesses taking advantage of the the California Competes State Tax Credit.

Current law requires Go-Biz to report the following online:

  • The name of each taxpayer that receives a state tax credit
  • The estimated number of jobs that are created or retained by the credit
  • The amount of credit the taxpayer is allocated
  • The amount of state tax credit recaptured from the taxpayer

The new law requires Go-Biz to additionally post the following information online:

  • The primary location where the taxpayer will increase the net number of jobs or investments
  • Information identifying credits considered priority due to being located in a high unemployment or poverty area
  • Information that identifies if the state tax credit awarded is counted toward the amount allocated for small businesses

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Revisiting the California Competes Tax Credit Program

Here's why the tax credit program is showing itself to be very difficult for companies to actually receive benefits from.

Here’s why the tax credit program is showing itself to be very difficult for companies to actually receive benefits from.

Do you operate a business in California? Have you taken advantage of the state’s tax credits offered through the California Competes program? The truth is, this program is showing itself to be very difficult for companies to actually receive benefits from.

As Susan Shelley, columnist for the Los Angeles Daily News, explains:

How does a business qualify for the California Competes tax credit and how much money can it save on taxes? There doesn’t seem to be a clear answer. “Tax credit agreements will be negotiated,” the [Governor’s Office of Business and Economic Development] website states.

The negotiating is done by the governor’s appointees at GO-Biz, then approved by the California Competes Tax Credit Committee. The CCTC committee is made up of the state treasurer, the director of the Department of Finance, the director of GO-Biz, one person appointed by the Assembly Speaker, and one person appointed by the Senate Rules Committee.

They meet several times a year to consider applications…one after another, company representatives are brought before the committee to be grilled about their application for a tax credit.

Shelley goes on to explain that the questions asked are harsh – so harsh that California Compete’s legal counsel was brought in to tell the committee they are limited regarding types of data they collect, especially when it comes to company demographics. However, the Assembly’s political appointee hired their own legal counsel to insist that the tax credit program could be used for the state legislature to, “pursue other ‘underlying goals.’”

I don’t know about you, but I’d like to see the program be more objective, less subjective, and more transparent. Companies applying for the credit currently receive little guidance on how to draft a success application, and while 25% of the funds are supposed to go directly to small businesses, they are precisely the types of companies that often don’t have the wherewithal to apply. Continue reading

California Tax Incentives: Are They Beneficial or Not?

Here are a few notable opinions regarding California's tax incentives.

Here are a few notable opinions regarding California’s tax incentives.

As California has rolled out additional tax incentives for businesses, the debate over their value has endured. Are they good for the state budget? Do they help give businesses reasons to stay? Keep reading to see two common opinions, as well as how we think California should continue.

For Tax Incentives

In a recent Lodi News-Sentinel article, Steve Hansen writes that California needs to become more business friendly and it seems legislators prefer to turn, “A blind eye.” His piece calls for the state to encourage business, rather than to make it so difficult.

As he points out:

  • For every 100 people in the private sector, there are now 114 people receiving a government check who are dependent on income created by large and small businesses.
  • [California] has been labeled by “Chief Executive” magazine as the worst state out of 50 for doing business. California has received this “award” for the last 10 years in a row.
  • [Legislators’] solutions have been to raise taxes, along with adding additional burdens, regulations and restrictions to those companies still trying to survive here. California has the highest income tax rate in the nation. Another has been to raise the minimum wage to one of the highest in the country.

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California Business’ Take on the State’s Recent Legislation

This is a picture of a California flag with a gavel in front of it.

How does recent state legislation affect California businesses? This post explains!

You may remember that back in November, the Tax Foundation released its State Business Tax Climate Index, which ranked states based on the various tax systems companies need to work within. California businesses were less than thrilled the state ranked 48th out of the 50 states.

Because the report is intended to help lawmakers see areas where they could improve, we thought it would be interesting to take a look at ways the Golden State is both improving and declining.

Legislation California Businesses Appreciate

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Permanent R&D Credit

It’s nice to start 2016 with some good tax news. Right before 2015 ended, the US Congress passed a significant bill that seeks to help American taxpayers keep their money and grow our economy. Last December, Congress passed a bill, referred to as “Protecting Americans from Tax Hikes Act of 2015” (PATH). For many years, there have been essential tax credits and benefits that expired every year with no certainty of extension. With PATH, that uncertainty goes away as it permanently extends more than 20 tax relief provisions.

The bill includes provisions for individuals, families, and businesses. A major provision that we want to focus on is the extension and modification of the R&D credit which is stated in section 121 of the bill. To see the entire bill, click here.

The provision permanently extends the research and development (R&D) tax credit. For years, the R&D credit had to be renewed by Congress annually (and some years wasn’t at all). Continue reading

Conducting Business in the Golden State [California State Tax Woes]

Is the California state tax system scaring you away? Be sure you make an informed decision!

Is the California state tax system scaring you away? Be sure you make an informed decision!

Do you conduct business is California? The state is known for a less-than-friendly atmosphere for clients, yet the economy is responsible for $2 trillion in business annually. With 1.37 million businesses and 17 million workers, many companies are choosing to maintain a presence despite California’s state tax system scaring many others away. In fact, another article recently concluded that California is one of the best places for new business. So what’s the real story? It’s probably something in between! The truth is, as the nation’s largest state, California is a hub for commerce, and many businesses can’t afford NOT to be here.

Why do businesses stay?

In a recent article, Joe Vranich, a corporate relocation specialist and harsh critic of the Golden State’s business climate, still says, “This is the single most beautiful state I’ve ever lived in…I have the best quality of life I’ve ever had here. And the weather, I tell people I think this is the weather we’ll find when we get to heaven.”

As a resident myself, I have to agree the state does have an appealing draw. It’s not all weather and beauty, either. There are particular fields California has a stronghold on, such as technology and entertainment. And, the state has started doing what it can to try to entice companies to stay too, by providing some credits and incentives to offset the hefty California state tax costs (see our recent blog about the state’s California Competes Tax Credit). Of course, other states offer credits and incentives as well, so some of that is just California trying to keep up. Continue reading