Complete guide to the $308M "California Competes" tax credit | Applications open January 5th, 2026

The California Competes Tax Credit is a non-refundable income tax credit available to businesses that want to locate in California or stay and grow within the state. Unlike many entitlement-based tax breaks, the CCTC is a negotiated agreement between the business and the Governor’s Office of Business and Economic Development (GO-Biz). It is available to businesses of any size, industry, or location within California, provided they can demonstrate a plan to create quality, full-time jobs that might not otherwise exist without the credit.

Funding Update: $308 Million Available This January

For the 2025-2026 fiscal year, a total of $922,694,691 in tax credits has been made available for allocation. This represents a significant investment in the state's commercial infrastructure. Of this total, $308 million is specifically earmarked for the upcoming January application window, which officially opens on January 5, 2026. This window is one of only three opportunities this fiscal year for businesses to secure a portion of these "earned" benefits.

Program Strategy: Building a Resilient Economy

The strategic goal of the program is to attract and retain high-value employers in industries that provide high economic multipliers. By offering these credits, California aims to support businesses that pay good wages, offer robust benefits, and contribute to the long-term economic stability of their local regions. In the state’s current 2026 economic landscape, the CCTC serves as a critical counterweight to out-of-state competition, ensuring that California remains the preferred destination for sustainable business expansion.

Who Qualifies for California Competes?

The California Competes Tax Credit is designed with a "big tent" philosophy, meaning it is not restricted by industry or geography. Whether you are a small neighborhood manufacturer or a large-scale technology firm, the program is open to you provided your growth is based in California.

• No Industry Restrictions: From agriculture to aerospace, any business sector can compete for these credits.
• Small Business Inclusion: The state explicitly reserves a portion of these credits for small businesses (those with gross receipts of less than $2 million in the prior tax year) to ensure they aren't crowded out by larger corporations.
• The Full-Time Mandate: The most critical eligibility rule is that credits are strictly tied to full-time employees. For CCTC purposes, a full-time employee is a W-2 worker who averages at least 35 hours per week.
• The Part-Time Exclusion: You cannot "stack" part-time employees to meet full-time requirements. Two 20-hour-per-week employees do not equal one full-time hire in the eyes of GO-Biz.

Key Dates: The January Application Window

If you are planning an expansion, the time to act is now. The upcoming application period is one of the largest of the year, with $308 million in available credits on the table.

• Applications Open: January 5, 2026.
• Applications Close: January 26, 2026.
• Decision Timeline: The process from submission to a final committee decision typically takes approximately three months.

To ensure applicants understand the mechanics of the 2026 cycle, GO-Biz has scheduled two mandatory-viewing outreach webinars. These sessions provide a 45-minute deep dive into the application process followed by a live Q&A:

• Webinar 1: January 7, 2026 (9:30 am – 10:30 am PST).
• Webinar 2: January 15, 2026 (3:00 pm – 4:00 pm PST).

The Competition: How Your Application Is Evaluated

Securing a California Competes Tax Credit is not a guarantee; it is a competitive process where your business is measured against others across the state. To manage the high volume of applicants, GO-Biz utilizes a rigorous two-phase evaluation system.

Phase I: The Quantitative Filter

The first hurdle is purely mathematical. GO-Biz calculates a Cost-Benefit Ratio for every applicant based on a specific formula: the total credit amount you are requesting divided by the sum of your aggregate employee compensation and your aggregate investment.

• The 200% Rule: Generally, only the top 200% of applicants—those offering the most economic "bang for the buck" with the lowest ratios—are moved forward to the second phase.
• Exemptions for High-Need Areas: You can bypass this strict mathematical cutoff if you certify that your project would otherwise move out of state, or if at least 75% of your new hires will work in an area of high unemployment or high poverty.
• Historical Benchmarks: For the first period of the 2025-26 fiscal year, the cutoff ratio was .2980.

Phase II: The Strategic Deep-Dive

If you clear Phase I, your application undergoes a comprehensive qualitative review. During this stage, GO-Biz evaluates 14 different factors to determine the strategic value of your business to California.

• Economic Impact: The state looks at the number of jobs created, the compensation levels, and the total dollar amount of your investment in California.
• Strategic Importance: Priority is given to businesses that are vital to their region or are part of the "strengthen" and "accelerate" sectors outlined in the state's Economic Blueprint.
• Social and Workforce Standards: GO-Biz now explicitly considers your commitment to fair workforce treatment and whether you are relocating jobs from states with laws that discriminate based on sexual orientation or restrict reproductive rights.

Terms of the Deal: Accountability and Compliance

Once an agreement is negotiated, it must be approved by the California Competes Tax Credit Committee. This committee includes the State Treasurer, the Director of the Department of Finance, and the Director of GO-Biz.

• The $20,000 Minimum: To ensure the program remains focused on meaningful growth, the minimum credit amount a business can request is $20,000.
• Milestone-Based Awards: You do not receive the full credit upfront. Credits are allocated annually based on achieving specific hiring and investment "milestones" outlined in your contract.
• Recapture Provisions: If your business fails to meet its contractual commitments, the state has the authority to "recapture" or take back the tax credits.
• Carryover Limits: If you cannot use the full credit in a single tax year, you can carry the excess forward for up to six years.

Preparation: Applications Open January 5th

With the window opening in just a few days, business owners should begin gathering the necessary documentation to ensure a smooth submission.

• Data Requirements: You will need detailed payroll records from your "base year" (the taxable year immediately preceding your application).
• The 5-Year Plan: Be prepared to provide a 5-year business projection, including specific job classifications for new hires and a schedule of planned capital investments.
• High-Poverty Check: Use the state’s High Unemployment and Poverty Areas list to see if your project location qualifies for a Phase I exemption.

The January window represents a massive opportunity to fuel your company’s 2026 growth with state-backed support. Prepare your data now to be ready when the portal opens on Monday.

Preparing Your Data: Application Checklist

With the California Competes Tax Credit (CCTC) portal opening on Monday, January 5, 2026, the difference between a successful award and a missed opportunity often comes down to data preparation. Because this is a competitive process, having your numbers ready for the "Phase I" mathematical filter is essential.

To get your application ready for the Monday launch, ensure you have gathered the following specific data points:

1. Base Year Payroll Records

You must establish a "Base Year" to measure your future growth. This is the taxable year immediately preceding the year you submit your application.

• Full-Time Employee Count: Identify every W-2 employee who worked an average of at least 35 hours per week in California during your base year.
• Annual Full-Time Equivalent (AFTE): For employees who worked less than a full year, you must calculate their AFTE to provide an accurate baseline.
• Wages Paid: Total the W-2 wages paid in the base year, excluding tips, overtime, bonuses, or benefits.

2. Your 5-Year Growth Projections

The CCTC is a forward-looking contract. You will need to input your specific hiring and investment goals for the 2026 through 2030 tax years.

• Net New Hires: The number of additional full-time employees you plan to add each year beyond your base year total.
• Job Classifications: A clear list of the types of roles you are creating (e.g., manufacturing, management, executive).
• Projected Compensation: The minimum and average annual wages for these new hires.

3. Capital Investment Schedule

You will be evaluated on the "Real" and "Personal" property you purchase or lease specifically for this project.

• Real Property: Costs for land, new construction, or the expansion of existing buildings.
• Personal Property: Tangible assets like manufacturing equipment, vehicles, software licenses, and electronic devices.
• Timing: Only include investments made after the close of the current application period (January 26, 2026).

4. Strategic Narrative Data

If you move to Phase II, you will need to justify why your business "needs" this credit.

• Out-of-State Options: Evidence of specific sites or cities outside of California you are considering for this expansion.
• Cost Comparisons: Any data showing the cost differences between expanding in California versus an out-of-state location.
• Local Impact: Data on how your project supports local unemployment or poverty goals.

5. Legal and Administrative Details

• Entity Information: Your legal business name as registered with the California Secretary of State.
• NAICS Code: Your primary business and proposed project classification codes.
• Primary Contact: The name and email of the individual authorized to negotiate with GO-Biz on behalf of the company.

The Evaluators' Lens: Understanding the 14 Review Factors

Clearing the Phase I mathematical hurdle is only the beginning. Once your application reaches Phase II, it undergoes a comprehensive review by GO-Biz staff. This qualitative evaluation is where you prove your project’s strategic value to California. The state uses 14 distinct factors to weigh your proposal against others.

• Job Creation and Retention: The total number of net new full-time positions you commit to creating in California.
• Employee Compensation: The state analyzes the total wages and benefits package offered to your new hires.
• Capital Investment: The amount of money you are investing in real property (like buildings) and personal property (like machinery).
• Economic Impact: The overall positive effect your expansion will have on the state, region, or local community.
• Strategic Importance: How your business fits into the state’s broader economic goals, particularly within priority sectors.
• Unemployment and Poverty: Special consideration is given to projects located in areas with high poverty or unemployment rates.
• Opportunity for Future Growth: The potential for your business to continue expanding in California beyond the initial five-year contract.
• Training Opportunities: The extent to which you offer training, career ladders, or apprenticeships to your employees.
• Incentive Influence: You must demonstrate that the tax credit is a "material factor" in your decision to grow in California rather than another state.
• Competing Incentives: The state considers what other financial perks are available to you, both within California and from other states.
• Project Duration: The length of time your project will take and your commitment to remaining in the state.
• Benefit-to-Credit Ratio: The extent to which the anticipated economic benefit to California exceeds the amount of the tax credit awarded.
• Workforce Fairness: Your record of treating workers fairly and creating quality, full-time salary positions.
• Social Policy Alignment: A unique 2026 factor considers your willingness to relocate jobs from states with laws that discriminate against LGBTQ+ individuals or restrict reproductive rights.

Financial Terms & Compliance: Earning Your Award

The California Competes Tax Credit is not a lump-sum grant; it is a milestone-based agreement that must be earned through verified performance. To maintain eligibility and protect your award from recapture, you must understand the financial mechanics and the state's oversight process.

• Milestone Requirements: Each agreement includes specific yearly targets for full-time employment, salary levels, and project investment. You must meet these milestones for each taxable year to earn the allocated credit for that period.
• Claiming the Credit: Credits can only be claimed on your income tax return once you have achieved the milestones associated with that taxable year. For the 2025-2026 fiscal year, awardees will use form FTB 3531 to attach to their return.
• Carryover and Assignments: Because the credit is non-refundable, it can only reduce your tax liability to zero (or the tentative minimum tax). Any excess credit can be carried forward for up to six taxable years.
• Annual Reporting and Review: Participating businesses must submit annual reports to GO-Biz indicating they are in compliance with their agreements. The Franchise Tax Board (FTB) is responsible for reviewing these records to ensure milestones were met.
• Recapture Provisions: If a business fails to satisfy its milestones, GO-Biz and the Committee have the authority to "recapture" previously claimed credits. Triggers for recapture include material breaches, failure to maintain employment levels for three years after achieving a milestone, or providing material misstatements during the application.

Conclusion: Securing Your Business Future in California

The California Competes Tax Credit represents a powerful opportunity for businesses to align their growth strategies with state-backed financial support. With $308 million available in the upcoming January window and nearly $1 billion total for the 2025-2026 fiscal year, the program is a cornerstone of California's effort to drive high-value economic expansion.

As the January 5, 2026 launch date approaches, preparation is key. By understanding the rigorous evaluation factors and readying your payroll and investment data, you can position your business to successfully navigate this competitive process and secure the resources needed to scale.