Work Opportunity Tax Credit (WOTC)
WOTC is a Federal tax credit available to employers who hire and retain veterans and individuals
from other target groups with significant barriers to employment. WOTC helps targeted workers move away
from economic dependency, while participating employers are able to reduce their income tax liability.
Target population of WOTC:
- Temporary Assistance for Needy Families (TANF) recipients
- Supplemental Security Income (SSI) recipients
- High-risk youth
- Vocational rehabilitation referrals
- Youth Employment program participants
- Food stamp recipients
The tax credit employers can claim depends on the target group of the individual hired, the wages paid to that
individual in the first year of employment, and the number of hours that individual worked. There is also a
maximum tax credit that can be earned. Employers generally can earn a tax credit equal to 25% or 40%
of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs.
New Markets Tax Credit (NMTC)
New Markets Tax Credit (NMTC) provides tax credits for new private sector investment in economically distressed
communities through certified Community Development Entities (CDEs). An organization wishing to receive awards
under the NMTC Program must be certified as a CDE by the Community Development Financial Institutions Fund of Department of Treasury.
To qualify as a CDE, an organization must:
- be a domestic corporation or partnership at the time of the certification application;
- demonstrate a primary a mission of serving, or providing investment capital for, lowincome communities or low-income persons; and
- maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.
Four types of activities by CDEs are possible when utilizing the NMTCs:
- Making investment in or loans to qualifying businesses
- Providing financial consulting to businesses and residents of low income communities
- Making investments in or loans to other CDEs which then makes investments in, loans to, or provide financial consulting to qualifying businesses
- Purchasing loans from CDEs
Low Income Housing Tax Credit (LIHTC)
LIHTC was created by the United States Congress as a part of the Tax Reform Act of 1986 to promote the development of affordable rental housing for low-income individuals and families.
Federal housing tax credits are awarded to developers of qualified projects. Developers then sell these credits
to investors to raise capital (or equity) for their projects, which reduces the
debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit
property can in turn offer lower, more affordable rents.
Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit
against their Federal tax liability each year over a period of 10 years.
To be eligible for consideration under the LIHTC program, a proposed project must:
- Be a residential rental property
- Commit to one of two possible low-income occupancy threshold requirements
- Restrict rents, including utility charges, in low-income units
- Operate under the rent and income restrictions for 30 years or longer, pursuant to written agreements with the agency issuing the tax credits.
Renewable Energy Tax Credit
Renewable Energy Tax Credit has two major components:
Investment Tax Credit (ITC), and Production Tax Credit (PTC).
Investment Tax Credit
Investment Tax Credit is offered to commercial renewable energy projects based on total dollars spent on qualified
and eligible property. The credit varies depending on the type of renewable energy project; solar, fuel cells and
small wind are eligible for credit of 30% of the cost of development, with no maximum credit limit.
Geothermal, microturbines, and combined heat and power panels are eligible for 10%.
Costs that are eligible for the credit:
- Hard costs (panels, inverters, mounting, electrical wiring, etc.)
- Direct and indirect costs (system integration, permits, city fees, etc.)
Investment tax credit is earned fully when a project in placed in service.
Production Tax Credit
Production Tax Credit is provided to renewable energy projects based on total amount of electricity produced. Qualifying energy sources include:
- Closed-loop biomass
- Open-loop biomass
- Small irrigation hydro
- Municipal solid waste
- Qualified hydropower
Different qualified energy resources have different rate at which credit is awarded. Production tax credit is earned
over 10 years, beginning when the project is placed in service.
Three-Part Economic Zones (EZ)
Governor Brown signed SB 90 and AB 93 on July 11, 2013. These bills phase out California’s 28 year-old Enterprise Zone. The program, which provides tax credits to businesses in targeted areas if they purchase qualified equipment or hire qualified employees, will be replaced with Governor Brown’s new three-part economic development plan.
Enterprise Zones will be re-zoned as “Former Enterprise Zones,” which include Enterprise Zones that were designated through
2012 and expansion areas effective through June of 2013. These Former Enterprise Zones will be re-zoned to exclude any areas in the lowest
quartile of census data for unemployment and poverty. Businesses in Former Enterprise Zones will be eligible for certain benefits under Governor Brown’s new three-part economic development plan.
Part 1 — Partial Sales Tax Credit Exemption for Qualified Equipment
Taxpayers may claim a partial sales tax exemption for the state portion of sales tax imposed on
equipment purchases from July 1, 2014 through July 1, 2022 if used in the below-listed activities. An
exemption certificate must be presented at the time of purchase.
- R&D as defined under section 174 of the Internal Revenue Code
- Maintenance of the above equipment
- Pollution control equipment
Excluded industries and equipment:
- Banking businesses
- Extractive businesses
- Agricultural businesses
- Non-capitalized equipment
Part 2 — Hiring Tax Credit
A new hiring tax credit for Designated Census Tracts and Economic Development Areas will replace the
Enterprise Zone hiring tax credit. Full-time employees meeting one of the criteria listed below will be
eligible. The credit will be available for tax years 2014 through 2020 inclusive and must be claimed on a
timely-filed original return.
An employer must make a tentative credit reservation in a manner to be prescribed by FTB for each
qualified employee within thirty days of registering with EDD. Taxpayers must also provide annual data
regarding these employees to FTB by the corporate tax filing deadline for their respective tax years.
There is a recapture provision, with exceptions, for employees terminated in the first 36 months of
employment. The hiring credit has a five year carry forward provision, and is generated for five years
from the date an employee is hired. Employees must still work at least half of a given taxable year
within qualified areas and their starting wage must now be at least 150% of minimum wage. A qualified
employee must be hired 2014 onward and work in a Former Enterprise Zone, or a qualified employee
must be hired after the employee’s job-site becomes a Designated Census tract.
- Unemployed six months preceding date of hire (higher education students must have graduated 12 months prior)
- Veteran unemployed since separation from service
- Earned Income Tax Credit recipient in prior year
- Ex-offender as previously defined under the Enterprise Zone act
- CalWORKS or general assistance recipient
Industries not eligible unless meeting the small business $2M exclusion:
- Temporary staffing agencies
- Retail establishments
- Food service establishments
- Casinos (including casino hotels)
- Bars, lounges or other drinking establishments
- Live nude entertainment (no small business exclusion)
California Competes Tax Credit Committee
Governor Brown’s Office of Business and Economic Development will receive a $600,000 budget
allocation to negotiate tax credit contracts with businesses based on a series of factors listed below. The
contracts will be approved or rejected by the California Competes Tax Credit Committee. These credits
will be available for tax years beginning 2014 through 2024 inclusive and will be subject to recapture if
the business fails to achieve the objectives outlined in the agreement. The program is repealed in 2025.
Factors Considered by the California Competes Tax Credit Committee
- The number of jobs to be created or retained in the state
- The amount of investment in California by the taxpayer
- Employee compensation
- Unemployment and poverty in the business’s location(s)
- Incentives available in California as opposed to other states
- Duration of commitment
- Economic impact
- Strategic importance
- Opportunity for future growth
- Cost benefit of tax credit