Sometimes it pays to do business in California.
The state gets hit with lots of grumbling about taxes and regulations but it also hands out a slew of subsidies, incentives and loans to offset those burdens.
State-level offerings are doled out by a patchwork of California agencies and some industries get more love than others.
Companies involved in manufacturing, research and development, film-making and alternative energy, for example, have been historically more likely to get a state handout.
Some get even more special attention.
This July, state lawmakers approved a $420 million tax break for aerospace manufacturer Lockheed Martin and expanded it to include fellow aerospace giant Northrop Grumman after that company cried foul.
The state has made more business subsidies available in recent years but they have yet to significantly chip away at the notion that it’s difficult to run a company here.
Many businesses aren’t aware of all the tax breaks or grant programs that exist, and many of them require formal applications and even fees.
The state’s aimed to simplify such applications and post more details online but that hasn’t necessarily translated into greater awareness of their existence.
Meanwhile, some business advocacy groups such as the right-leaning Tax Foundation have argued it’d be better for states like California to make broad reforms than to offer incentives that only some businesses can enjoy.
Here’s a basic rundown of state incentives companies can seek.
Straight Subsidies
This year, the state kicked off a slate of new economic development programs to replace a nearly 30-year subsidy program that’ll close at the end of the year.
This soon-to-be extinct policy is the enterprise zone program, which has allowed companies in 42 areas the state has dubbed economically distressed apply for hiring tax credits to cover up to $37,400 of a new employee’s yearly salary over five years. The program also gave companies an income tax credit for new equipment, among other incentives.
The San Diego area’s enterprise zone includes Barrio Logan, Golden Hill, Otay Mesa and parts of Chula Vista and National City. Enterprise zone program manager John Nunn Jr. said businesses in the San Diego region have consistently been among the top five recipients of these credits over the years.
The state Department of Finance estimates San Diego-area companies collected about $34.5 million in tax incentives in 2012 alone.
But Gov. Jerry Brown wasn’t a big fan of the program. A series of analyses by the state legislative analyst, the nonprofit Public Policy Institute of California and others found it didn’t generate new jobs, disproportionately aided large companies and may have just shifted some jobs around the state rather than create new ones.
Meanwhile, officials and economic-development types in many parts of the state, including San Diego County, insisted the enterprise zone program had significant payoffs for the local economy.
Brown and the state Legislature ultimately opted to shift the cash previously used for the enterprise zone program to a trio of new ones that’ve been rolled out in recent months. Companies already enrolled in the program can continue to collect hiring incentives for up to five years.
• California Competes tax credit: Businesses of all sizes that want move to California or expand here can apply for credits to offset income taxes. State officials say the companies that can prove they’re supplying well-paying jobs that could play a powerful role in their regional economies are most likely to get the handout. This year, the state’s set to give companies more than $150 million in such credits. Four San Diego-area companies won this incentive in the first round of the competitive program.
They included Petco, which will receive $2.6 million for its plans to hire 263 workers with an average salary of more than $80,000 and to build a new Rancho Bernardo headquarters. Manufacturer BST Nano Carbon of Rancho Bernardo is set to collect about $1.5 million and Oceanside pharma firm Sparsha and environmental contractor American Marine of National City will each get tens of thousands of dollars in credits.
Starting next year, available tax credits will rise to $200 million annually.
• Tax exemptions for manufacturers: Starting this July, some manufacturers and research and development firms have been able to claim a roughly 4.2 percent sales tax exemption for new equipment. Facility upgrades can also qualify for this break in some cases.
This exemption is most likely to help biotech firms, life science companies and a wide range of manufacturers.
• New Employment Credit: This incentive encourages companies to hire veterans, ex-felons or folks who’ve been unemployed for at least six months, among other qualifications.
Companies in designated areas with high unemployment can get up to 35 percent of such these’ salaries covered. The per-worker payout is capped at $56,000 over five years.
This credit is set to remain on the books until 2021.
• Research & Development Tax Credit: The state has long offered a credit similar to a federal version that saves research firms some cash. This program allows companies to get a cutback on their income and franchise taxes associated with 15 to 24 percent of research expenses, depending on the makeup of their company. This can cover wages, supplies and contract costs.
• California Film & Television Tax Credit: For the past several years, California has handed out $100 million in annual subsidies via a lottery system. Brown recently signed new legislation that axes that system and hikes annual incentive payouts to roughly $330 million a year.
The break for film and TV crews comes in the form of tax credits for production expenses. The updated version of the program adds a 5 percent tax break for crews that shoot outside of Hollywood.
• Advanced Transportation and Alternative Source Manufacturing Sales & Use Tax Exclusion Program: Companies can apply to avoid paying sales and use taxes associated with purchases for projects that involve energy-efficient transportation or alternative energy source products. At least four San Diego companies have been awarded these tax breaks since 2010
State Help
California offers at least four general financial assistance programs for businesses.
The California Capital Access Program pushes banks to provide loans to small businesses that may struggle to get financing. The Collateral Support Program pledges $50,000 to as much as $2.5 million per business in collateral, or money promised if the business can’t make payments. This allows companies to collect bank loans they might not otherwise be eligible to receive.
The state also provides financing for manufacturing facility purchases via bonds and loans that aid small companies with startup costs, expansion costs, construction and more.
Environmental Incentives
More than a dozen loan, grant and tax rebate programs encourage California businesses to invest in green technology or environmentally friendly practices.
They include everything from a rebate that offers companies thousands of dollars to purchase hybrid electric vehicles to an energy innovations grant that can provide up to $150,000 for alternative energy projects that attempt to address statewide utility concerns.
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, San Diego to Incoming Businesses: Group Hug!, and the next, One Thing the City Can’t Manufacture: More Space.