As a business owner in California—where taxes can be especially steep—it’s crucial to maximize your tax savings. Fortunately, California has a variety of helpful tax incentives for all types of businesses.
Keep reading for more information on state-specific credits—including California EV tax incentives and California solar tax incentives—and how to take advantage of them.
Quick Links
What are tax incentives and why do they matter?
There are two types of tax incentives: tax credits and tax deductions. A tax credit is a dollar-for-dollar reduction on the amount of tax you owe. Oftentimes, your business has to meet specific qualifications to apply for a tax credit, and many credits are location or industry-dependent.
A tax deduction, on the other hand, is a sum you can deduct from your taxable income. Most businesses, regardless of their industry, business model, or location, can take advantage of the same types of business deductions. Think: travel expenses or mileage.
State and federal governments offer tax credits to motivate businesses to make changes that benefit the environment, economy, workforce, and local communities. Beyond contributing to positive economic and environmental change, there are other great benefits of applying for tax credits. They can help you:
- Stay competitive
- Score government contracts
- Save money on taxes
- Invest in business growth
There are a multitude of different federal tax incentives available to businesses—here are some of the most common ones.
California tax credits for businesses
As a California-based business owner, you have a lot of options for state-specific tax credits. Here’s the key information you need to know:
California EV tax incentives
Clean Vehicle Rebate Program (no longer in effect)
California’s Clean Vehicle Rebate Program (CVRP)—which began in 2020 and stopped accepting applications in November 2023—was designed to help reduce pollution and get more energy-efficient vehicles on the road. The program gave eligible California residents a rebate of up to $7,500 to purchase or lease either a new plug-in hybrid electric vehicle, a battery electric vehicle, or a fuel cell electric vehicle.
If you applied for the program on or before September 5, 2023, your rebate amount was reserved; you’ll receive it as long as you met all the eligibility requirements and submitted your documentation within 90 days of the vehicle purchase or lease date. If you applied on or after September 6, 2023, you were placed on a rebate standby list.
Southern California Edison Pre-Owned Electric Vehicle Rebate Program
If you use Southern California Edison as your electricity supply company, you can apply for a rebate of up to $4,000 when you purchase or lease a pre-owned electric vehicle. Check out the eligibility requirements to see if you can apply.
Cleans Cars 4 All Program partial sales and use tax exemption
The Clean Cars 4 All Program, which is designed to support lower-income California drivers in replacing high-polluting cars with zero-emission vehicles, gives qualified buyers a partial sales and use tax exemption for leasing or purchasing an EV.
If you meet the residence and income requirements, you can get a grant of up to $9,500 to buy or lease a qualifying EV. To qualify for the partial exemption, you must abide by the following:
- Be a qualified buyer who has received an award letter from a participating air district
- Purchase a qualified motor vehicle for which a grant letter has been awarded to you under the Clean Cars 4 All Program
Review the California Department of Tax Fee and Administration’s Tax Guide for Motor Vehicle Dealers for more information.
Other EV-related tax credits
There are a lot of local or third-party-provided tax incentives for electric cars in California, including these:
- PG&E’s Empower EV Program offers income-eligible PG&E customers up to $2,500 in financial incentives.
- Peninsula Clean Energy is offering up to $2,000 to income-qualifying customers in San Mateo county or Los Banos to offset the purchase of a used plug-in hybrid or fully electric vehicle.
- The Antelope Valley Air Quality Management District offers Antelope Valley residents a $500 rebate for purchasing a battery-electric plug-in vehicle at an Antelope Valley car dealership.
- A lot of electric companies offer their own rebates for EV purchases; check here to see if your electric company has any incentive programs.
- Search for EV-related tax incentives by California zip code.
California Competes Tax Credit
The California Competes Tax Credit (CCTC) is an income tax credit available to all businesses that want to relocate to California or continue to grow their operations in the state. The purpose of the CCTC is to attract and retain high-value employers who take great care of their employees by providing competitive wages and benefits.
Issued by the Governor’s Office of Business and Economic Development (GO-Biz), the CCTV collectively awards qualified businesses over $180 million in tax credits. A total of $492,129,004 was allocated for the 2023-2024 fiscal year. The minimum credit request is $20,000, and the maximum amount for any one applicant per year is $98.4 million.
Businesses are evaluated on 14 different factors, including:
- Number of jobs they create or retain
- Training opportunities they offer to employees
- Opportunity for the business’s growth
- Compensation they pay to employees, including benefits
- Economic impact of the business
- Commitment to treating employees fairly and creating full-time wage and salary positions
If you receive the credit, you’ll make a five-year commitment to meeting annual milestones for full-time employment, salary levels, and project investment.
Applying is free, and there are three different application periods a year. The application periods for the 2023-2024 year have ended, but you can check back here for information on the 2024-2025 fiscal year. If you’ve already applied and need to claim your credit, review the details and instructions here.
For more information on the application and evaluation processes for California Completes, see GO-Biz’s helpful breakdown or explore the CA.gov resource page.
California hiring tax credits
New Employment Credit
The New Employment Credit (NEC) is available through 2026 to California employers who hire certain qualified full-time employees and do business in a specific location.
To qualify as an employer, you need to:
- Be engaged in a trade or business in California within a designated geographical area (DGA); the DGA typically includes cities and counties that have high unemployment and high poverty rates
- Hire qualified employees
- Get a tentative credit reservation for the qualified employees
- Pay qualified wages (the portion of wages that qualifies is the portion that’s between 150-350% of the California minimum wage, which is $16/hour as of January 1, 2024)
- Not fall under the category of an excluded business
- Have a net increase in jobs
For an employee to qualify under the NEC, they must:
- Be hired after the employee’s work location was made part of the DGA
- Perform at least 50% of their services in the DGA
- Receive starting wages that exceed 150% of the California minimum wage at the time of hire
- Be hired for full-time work
- Meet one of the qualification categories at the time of hire
- Unemployed for the previous six months or longer
- Veteran who was separated from the forces in the previous 12 months
- Received the federal Earned Income Credit in the previous taxable year
- Ex-offender convicted of a felony
- Current recipient of CalWORKS or general county assistance
If you and your new hire qualify for the credit, you need to make a tentative credit reservation within 30 days of completing your new hire reporting requirements. For more information on how to calculate your credit amount or carry it over, check out the California Franchise Tax Board’s (FTB) NEC overview here.
Homeless Hiring Tax Credit
The Homeless Hiring Tax Credit (HHTC) awards California employers for hiring people who are currently experiencing homelessness. HHTC—which is available through 2026—gives employers $2,500-10,000 in tax credit per eligible employee hired.
To be eligible, the employee must meet the following requirements:
- For the previous 180 days, either be experiencing homelessness or receiving services from a homeless services provider, like a shelter
- Be certified by a certifying organization, like the Continuum of Care program and community-service providers
To receive the credit, you need to apply for a tentative credit reservation within 30 days of hiring your new employee. For more information on the exact credit amounts available and how to claim your credit, review the FTB’s HHTC page.
Here’s everything you need to know about hiring for your small business.
California Research and Development Tax Credit
Based on the federal R&D tax credit, this credit is available to businesses that participate in R&D activities that take place in California. That includes any activity outside of regular operations that’s designed to improve a business’s long-term success and profitability. Think: product development or streamlining the supply chain.
The credit is 15% of the excess of qualified research expenses for the taxable year over the based period of research expenses. If you’re a corporation, you can also get a 24% credit of the basic research payments.
To claim the California R&D tax credit, you don’t also have to claim the federal R&D credit. Here are exact instructions for how to claim the credit.
Small Business Climate Credit
Issued by the California Public Utilities Commission (CPUC), the Small Business Climate Credit is a small flat sum of money given to eligible small businesses that meet certain electricity usage requirements.
To qualify as an eligible small business, you have to meet the below criteria:
- Be a business customer of one of these utility companies: Pacific Gas and Electric Company, San Diego Gas & Electric, Southern California Edison, Pacific Power (PacifiCorp), Liberty Utilities (CalPeco Electric), Bear Valley Electric Service, and all Community Choice Aggregators and energy service providers within those utility territories
- Be a non-residential, commercial, industrial, or agricultural customer that used less than 20 kilowatts of power in at least nine of the previous 12 months
Credits are issued twice a year—once in the spring and once in the fall—and usually amount to $200 or less. See the exact credit amounts available in 2024 here.
Advanced Transportation and Manufacturing Sales and Use Tax Exemption
The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) offers a full sales and use tax exclusion (STE) to manufacturers that promote alternative energy and advanced transportation.
The STE program is available through 2025 to eligible manufacturers who plan to either build a new manufacturing facility or expand or upgrade an existing facility using alternative energy technology. There are four types of eligible manufacturers:
- Alternative source product manufacturers
- Manufacturers of advanced transportation technologies
- Advanced manufacturers
- Manufacturers that process recycled feedstock or use it in the production of another product or soil amendment
If you get approved as an eligible manufacturer, you won’t have to pay state and local sales and use tax on qualified purchases for your construction or renovation projects. You can qualify for an exemption of up to $10 million per year.
To learn more about the eligible manufacturer categories and how to apply for the STE program, check here.
California solar tax incentives
Federal solar tax credits
There’s no state-specific solar tax credit for businesses, but there are two federal solar tax credits available to businesses that purchase solar systems for their commercial buildings. They are:
- The Investment Tax Credit (ITC): This reduces your federal income tax liability for a percentage of the cost of a solar system installed in the tax year.
- The Production Tax Credit (PTC): This is a per-kilowatt tax credit for electricity generated by solar and other alternative energy technologies during the first 10 years of a system’s operations.
To qualify for the ITC or PTC, your solar system has to be located in the United States or its territories, use new and limited previously used equipment, and not be leased to a tax-exempt entity. Visit Energy.gov for an explanation of the different base credit amounts and bonuses.
Federal Residential Clean Energy Credit
If you use your primary residence for occasional business purposes, you might be able to take advantage of the federal Residential Clean Energy Credit, which gives you a credit of up to 30% of the costs of making energy-efficient improvements to your main home.
Energy-efficient improvements include the purchase of solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology.
Keep in mind that this credit is for residential purposes only; if you use your main home solely for running your business, you can’t apply for the credit. But if you use your home for business purposes less than 20% of the time, you can qualify for the full credit amount. For more details and instructions on how to claim the credit, see the IRS page or visit Energy.gov.
Local solar incentives
Many electric companies offer their own California solar tax incentives and rebates for business customers. Here are some worth checking out:
- Alameda Municipal Power offers a rebate for commercial customers who install a heat pump water heater.
- Southern California Edison has a handful of different incentive programs and resources for businesses looking to reduce their carbon footprints.
- SoCalGas offers rebates on certain qualifying energy-efficient equipment purchases.
Want to lower your business’s carbon footprint? Here are six sustainability practices to adopt.
Cannabis tax credits
Cannabis Equity Tax Credit
With the Cannabis Equity Tax Credit (CETC)—which is available through 2027—qualified cannabis businesses can receive a $10,000 tax credit. To qualify, you need to have received approval from the California Department of Cannabis Control.
For more information on the CETC, email [email protected].
High-Road Cannabis Tax Credit
The High-Road Cannabis Tax Credit (HRCTC)—available through 2027—gives qualified cannabis businesses a tax credit of 25% of their qualified expenditures in the taxable year, up to a maximum of $250,000 of credit per year.
To qualify for the credit, you must:
- Operate a commercial cannabis business, and have either a Type 10 (retailer) or Type 12 (microbusiness) license
- Provide full-time employees with qualified wages (an amount between 150-350% of the California minimum wage), group health insurance, and retirement or pension benefits
- Make a tentative credit reservation for each taxable year during the month of July of the taxable year, or within 30 days of the start of their taxable year if it begins after July
For details on what constitutes a qualified expenditure and how to claim the credit, visit the FTB’s HRCTC page.
Film and Television Tax Credit Program 3.0
If you produced a qualifying movie or TV show in California, you might be eligible for the Film and Television Tax Credit Program 3.0. Qualifying productions include:
- Relocating TV series that filmed their most recent season outside California can get a 25% non-transferable tax credit on qualified expenditures.
- Independent films with a $1 million minimum budget can get a 25% credit on the first $10 million of qualified expenditures.
- A feature film with a $1 million minimum budget, a new TV series or mini-series with a $1 million minimum budget per episode, or a pilot with a $1 million minimum budget can get a 20% non-transferable tax credit on qualified expenditures.
- Eligible projects can get an additional 5-10% credit for out-of-zone filming, visual effects, or hiring local labor.
For information on how and when to apply, check out the California Film Commission’s FAQs.
California business financing and resources
One major perk of doing business in California: the robust selection of funding programs and financial resources for companies of all sizes and kinds. Here are several to know about:
- California’s Capital Access Program (CalCAP): CalCAP is a credit enhancement program funded by the State Small Business Credit Initiative (SSBCI); it gives qualifying small businesses up to $5 million in loans for a variety of needs, including working capital, inventory and equipment purchases, and renovation.
- GoGreen Business Energy Financing: The GoGreen program gives small and medium-size businesses financial incentives and support to make energy-efficiency upgrades to their businesses. To qualify, you need to have fewer than 100 employees, less than $15 million in annual revenue, and be a customer of PG&E, SDG&E, SCE, or SoCalGas.
- The Small Business Loan Guarantee Program (SBLGP): Administered by the California Infrastructure and Economic Development Bank, the loan guarantee program helps small businesses get easier access to capital. If you qualify, you can get loans of up to $20 million for startup costs, business expansion, and growth projects.
- California Small Agricultural Business Drought and Flood Relief Grant Program: This program awards eligible small agricultural businesses that have been adversely affected by California droughts with grant money to put toward employee and operational expenses.
To explore more state financing opportunities and incentives, visit CA.gov. And here’s a list of regional business grants and loans for California businesses.
Want more California business resources? Check out Gusto’s guide to California business taxes and hiring in the Golden State.
