State Tax Credit and Incentives Update
California, Connecticut, New Jersey, New York and Louisiana
By Barry Halpern, Partner, Tax & Business Services
Several states recently enacted notable updates to their credit and incentive programs that may be beneficial in tax years 2021 and later. A common theme among these state programs is the desire to boost the economic recovery process through amped up and/or new credit and incentive programs. In this article, we summarize a few of these state credit and incentive programs that could benefit businesses and their owners.
California Competes Tax Credit
The California Competes Tax Credit (CCTC) is an income (or franchise) tax credit available to businesses that want to grow in California and create new, quality full-time jobs. The tax credit agreements are negotiated by the Governor’s Office of Business and Economic Development (GO-Biz) and approved by a statutorily created CCTC Committee.
California expanded the amount allocated to the Competes Tax Credit program to incentivize businesses to relocate to California. The aggregate amount of credit that may be allocated under the California Competes Tax Credit program for the 2021–22 fiscal year is now $394.7 million.
The CCTC is available for allocation in three separate application periods:
- July 26, 2021 through August 16, 2021 ($150 million)
- January 3, 2022 through January 24, 2022 ($140 million)
- March 7, 2022 through March 28, 2022 ($104.7 million plus any remaining unallocated amounts from previous application periods)
Applications for the credit will be accepted at calcompetes.ca.gov from July 26, 2021, through August 16 2021.
Main Street Small Business Tax Credit
California enacted legislation for the Main Street Small Business Tax Credit II on July 16, 2021, to assist businesses impacted by the economic disturbances in 2020 and 2021. This credit is similar to the Main Street Small Business Tax Credit that was available for the 2020 tax year. However, there are key differences in the time frame and the requirements for eligibility in 2021.
To qualify for the credit, taxpayers must:
- Have had 500 or fewer qualified employees on December 31, 2020 (including part-time employees).
- Have had a decrease of 20 percent or more in gross receipts for 2020 as compared to 2019.
- Obtain a tentative credit reservation from the California Department of Tax and Fee Administration (CDTFA). When applying for the reservation, taxpayers must make an irrevocable election to apply the credit either to sales and use taxes or income taxes.
The time period for requesting the required reservation begins on November 1, 2021, and ends on November 30, 2021, or an earlier date if the allocation limit for this credit is reached.
The credit is equal to $1,000 for each net increase in qualified employees, as measured in monthly full-time employee equivalents. The total amount of credit for each employer cannot exceed $150,000.
Homeless Hiring Credit
For tax years 2022 through 2026, California provides a tax credit for employers that hire homeless individuals. Employers may claim the credit against their personal income taxes or corporate taxes.
Under this plan, a qualified employer can claim a tax credit of between $2,500 and $10,000 per qualified homeless individual hired (maximum of $30,000 annually), thereby assisting both individuals experiencing homelessness and businesses that need additional support to recover from the economic impacts of the pandemic. The goal of the credit is to encourage employers to hire and retain individuals from the homeless population who face systemic barriers to employment.
The individual hired must:
- Be homeless on the date hired or during the 180-day period immediately before the hire; or
- Receive supportive services from a homeless service provider.
An eligible employer must:
- Pay wages subject to withholding of at least 120% of the California minimum wage.
- Must apply to the FTB for a credit reservation within 30 days of hiring the eligible individual.
- May claim the credit only on timely filed original returns.
- Must reduce any deduction otherwise allowed for qualified wages by the amount of the credit allowed.
If the credit allowed exceeds the amount of tax due, the excess may be carried over to reduce tax in the succeeding three years, if necessary, until the credit is exhausted.
Recent legislative changes in Connecticut include:
- Increases over a two-year period the cap on the amount of research and development (R&D) tax credits a taxpayer can claim each year, from 50.01% of the taxpayer’s annual tax liability to 60% for the 2022 income year and 70% in the 2023 income year and each year thereafter.
- Reduces the number of years unused R&D tax credits can be carried forward to 15 years (from “until fully taken”).
- Increases the aggregate cap on InvestCT tax credits to $550 million (from $350 million), but retains the existing $40 million annual cap.
- Allows 78% of the film and digital media production tax credit to be claimed against the sales and use tax if there is common ownership of at least 50% between the taxpayer and the eligible production company that sold, assigned or otherwise transferred the credit, effective Jan. 1, 2022.
Personal Protective Equipment (PPE) Manufacturing Tax Credit
The PPE Manufacturing Tax Credit makes available $10 million in investment tax credits per year to businesses that invest in the production of PPE during the 2020, 2021, and 2022 tax years. The program supports investment in PPE manufacturing facilities and equipment to increase the availability of critical public healthcare products and create manufacturing jobs.
Projects can receive a base tax credit of $10,000 per new job created, up to an annual program cap of $10 million. Individual projects are subject to an annual cap of $500,000. Bonuses are available for projects that meet additional policy goals.
PPE Manufacturing Tax Credits that exceed the amount a taxpayer owes shall be treated as a refundable overpayment. A PPE Manufacturing Tax Credit for new or retained jobs will not apply if the taxpayer is receiving a tax credit incentive award for the same jobs under the Emerge Program.
To receive tax credits through the PPE Manufacturing Tax Credit Program, a project must:
- Manufacture PPE, such as coveralls, face shields, gloves, gowns, masks, respirators, safeguard equipment, and other equipment designed to protect the wearer from the spread of infection or illness.
- Create a minimum number of new jobs.
- Meet a minimum investment threshold for new construction or the improvement or fit-out of existing facilities.
- Be located in an approved redevelopment or rehabilitation area, Smart Growth Area, or facility engaged in a research collaboration or an apprenticeship or pre-apprenticeship program with a New Jersey educational institution or in a large, long-vacant building.
Emerge NJ Program
The Emerge NJ Program grants awards to taxpayers that meet minimum thresholds and other investment requirements in targeted areas and industries.
The annual nonrefundable income tax credit ranges from $500 to $8,000 for up to seven years per new job created. In certain circumstances, projects involving large-scale job retention can also qualify. The tax credits can be sold when taxpayers have insufficient tax liability to offset.
New Jersey recently updated the law setting forth new requirements for eligible program applicants to demonstrate that the new and retained full-time jobs at the qualified business facility are subject to 80% or more of New Jersey withholding tax.
Angel Investor Tax Credit
The New Jersey Angel Investor Tax Credit Program establishes tax credits against corporate business or gross income taxes based on a qualified investment in a New Jersey emerging technology business or in a qualified venture fund for the purposes of stimulating investment.
Investors can receive a tax credit in an amount equal to 20-25 percent of the qualified investment. The qualified investment cannot exceed $500,000.
The program has been expanded to include investments in a “qualified venture fund” that invests a minimum of 50 percent of its funds in New Jersey-based businesses.
Employees only have to spend 60% of their time in-state to qualify for certain tax breaks, a nod to long-term changes in the workforce due to the pandemic. Qualified employees were previously required to spend 80% of their time in New Jersey.
$350 million in tax credits previously allocated to two major economic incentive programs will now be allocated to offshore wind projects.
The state’s film and digital media tax credit was increased to 35% of qualified film production expenses. Credits can be claimed until July 1, 2034.
New York recently announced the launch of the Pandemic Recovery and Restart Program. The program, whose purposes is to help certain industries that suffered economic harm due to COVID, includes the Restaurant Return-To-Work (RRTW) tax credit and the New York City Musical and Theatrical Production (NYCMTP) tax credit.
- The RRTW provides for a $5,000 (up to $50,000) credit for eligible small business food and beverage businesses that are increasing employment. Click here for more information.
- The NYCMTP provides a credit of 25% of qualified production expenditures (capped at $1.5-$3 million) for eligible businesses principally engaged in the production of a qualified musical or theatrical production to be performed in a qualified New York City production facility. Click here for more information.
On June 23, 2021, Governor John Bel Edwards signed HB 678 and HB 680, establishing certain tax credits to encourage the hiring of people facing barriers to entry into the workforce.
Louisiana Work Opportunity Tax Credit
Provides a non-refundable income tax credit of up to $2,500 per eligible re-entrant (i.e., an inmate or former inmate eligible to participate in a work release program) to businesses that hire participants in certain work release programs.
- The credit is available only once for each eligible re-entrant.
- The credit can be claimed against Louisiana income or franchise tax for the tax period in which the credit is earned.
- Unused credit can be carried forward for up to five years.
- The credit applies to the employment of eligible re-entrants with a release date occurring on or after Jan. 1, 2021 and it sunsets June 30, 2027.
Louisiana Youth Jobs Tax Credit Program
Provides a non-refundable credit against the corporate income or franchise tax for businesses hiring eligible youths on or after July 1, 2021.
- The credit equals $1,250 per hire in a full-time position and $750 per hire in a part-time position.
- The business will earn the credit in the year in which the eligible youth completes the third consecutive month of work.
- The unused credit can be carried forward for up to five years.
- The credit sunsets on December 31, 2025.
Apprenticeship Tax Credit
Provides a non-refundable credit that can be claimed against the corporate income or franchise tax for businesses that employ apprentices, effective for taxable periods beginning after December 31, 2021.
- The credit equals $1.25 per hour of employment for each eligible apprentice employed for a minimum of 250 hours during the tax period, up to $1,250 per year.
- Unused credits may be carried forward for five years.
- No credit will be granted after December 31, 2028.
For more information about these or other state credit and incentive programs, please reach out to a member of the Marcum National Credits and Incentives team.