California Business Tax Credit Expiring

The California Manufacturer's Investment Credit will end December 31, 2003. It had been scheduled to sunset at that date for some time but most people thought it would be extended again, just as it has been several times before. Unfortunately, due to the budget crisis in California, recent compromises excluded the extension from the original proposal.

In case you are not familiar with it, the credit is equal to 6% of the cost of qualified tangible personal property purchased and used in California in activities such as manufacturing, processing, refining, fabricating, recycling, research and development and pollution control. The credit is also available to qualified taxpayers who engage in the following activities: computer programming, prepackaged software or computer integrated systems design. In some cases, special purpose real property can also qualify for the credit. The credit is a direct offset against California income taxes.

In case you are not familiar with it, the credit is equal to 6% of the cost of qualified tangible personal property purchased and used in California in activities such as manufacturing, processing, refining, fabricating, recycling, research and development and pollution control. The credit is also available to qualified taxpayers who engage in the following activities: computer programming, prepackaged software or computer integrated systems design. In some cases, special purpose real property can also qualify for the credit. The credit is a direct offset against California income taxes.

Keep in mind that there have also been some very significant recent federal tax benefits passed to encourage investments in many types of depreciable assets. These incentives include improved accelerated depreciation and an increase in the value of new purchases that can be expensed in the year that the assets are placed in service.

Since there are some conflicts between electing the federal benefits and qualifying for this state credit, you should contact your tax advisor to discuss how these might apply in your particular situation.