2020 Instructions for FTB 3531 California Competes Tax Credit
Credit Limitation – For taxable years beginning on or after January 1, 2020, and before January 1, 2023, there is a $5,000,000 limitation on the application of business credits for taxpayers. The total of all business credits including the carryover of any business credit for the taxable year may not reduce the “net tax”, for personal income tax filers, or the “tax”, for corporate filers, by more than $5,000,000. For taxpayers included in a combined report, the limitation is applied at the group level. The business credits disallowed due to the limitation may be carried over. The carryover period for disallowed credits is extended by the number of taxable years the credit was not allowed. This limitation does not apply to the Low-Income Housing Credit.
Use form FTB 3531, California Competes Tax Credit, to report the credit amount for the current year, the amount to carryover to future years, and any amount recaptured. Also use this form to claim pass-through credits received from S corporations, estates, trusts, partnerships, or limited liability companies (LLCs).
S corporations, estates, trusts, partnerships, and LLCs should complete form FTB 3531 to figure the amount of credit to pass through to shareholders, beneficiaries, partners, or members. Attach this form to Form 100S, California S Corporation Franchise or Income Tax Return; Form 541, California Fiduciary Income Tax Return; Form 565, Partnership Return of Income; or Form 568, Limited Liability Company Return of Income. Show the pass‑through credit for each shareholder, beneficiary, partner, or member on Schedule K-1 (100S, 541, 565, or 568), Share of Income, Deductions, Credits, etc.
The California Competes Tax Credit (CCTC) is available for taxable years beginning on and after January 1, 2014, and before January 1, 2030, to businesses that enter into a CCTC Allocation Agreement (credit agreement) with the Governor’s Office of Business and Economic Development (GO-Biz). Tax credit agreements are negotiated by GO-Biz and approved by the California Competes Tax Credit Committee. For more information, go to the GO-Biz website at business.ca.gov and search for ca competes.
To claim the CCTC, a taxpayer must have entered into a credit agreement with the GO-Biz and met the terms and conditions in the credit agreement. The credit is allocated by taxable year as specified in the credit agreement. As part of the credit agreement, a taxpayer commits to meet and maintain yearly employment and project investment requirements, referred to as “milestones.” If a taxpayer meets the milestones for a taxable year as specified in the credit agreement, then the credit for that year is earned and may be claimed on the tax return.
For taxable years beginning on or after January 1, 2020, and before January 1, 2023, there is a $5,000,000 limitation on the application of business credits, including carryover. For taxpayers included in a combined report, the limitation is applied at the group level. The limitation does not apply to the Low-Income Housing Credit.
S corporations may claim only 1/3 of the credit against the 1.5% entity‑level tax (3.5% for financial S corporations). The remaining 2/3 must be disregarded and may not be used as carryover. In addition, S corporations may pass through 100% of the credit to their shareholders.
If a taxpayer owns an interest in a disregarded business entity [a single member limited liability company (SMLLC) not recognized by California, and for tax purposes is treated as a sole proprietorship owned by an individual or a branch owned by a corporation], the credit amount a taxpayer receives from the disregarded entity that can be utilized is limited to the difference between the taxpayer’s regular tax figured with the income of the disregarded entity, and the taxpayer’s regular tax figured without the income of the disregarded entity.
For more information on SMLLCs, get Form 568, Limited Liability Company Tax Booklet.
This credit cannot reduce the minimum franchise tax (corporations and S corporations), the annual tax (limited partnerships, limited liability partnerships, and LLCs classified as a partnership), the alternative minimum tax (corporations, exempt organizations, individuals, and fiduciaries), the built-in gains tax (S corporations), or the excess net passive income tax (S corporations).
If a C corporation had unused credit carryovers when it elected S corporation status, the carryovers were reduced to 1/3 and transferred to the S corporation. The remaining 2/3 were disregarded. The allowable carryovers may be used to offset the 1.5% tax on net income in accordance with the respective carryover rules. These C corporation carryovers may not be passed through to shareholders. For more information, get Schedule C (100S), S Corporation Tax Credits.
This credit can reduce regular tax below the tentative minimum tax (TMT). Get Schedule P (100, 100W, 540, 540NR, or 541), Alternative Minimum Tax and Credit Limitations, for more information.
This credit is not refundable.
E. Assignment of Credits
Assigned credits to affiliated corporations – Credit earned by members of a combined reporting group may be assigned to an affiliated corporation that is an eligible member of the same combined reporting group. A credit assigned may only be claimed by the affiliated corporation against its tax liability. For more information, get form FTB 3544, Assignment of Credit, or go to ftb.ca.gov and search for credit assignment.
If the available credit exceeds the current year tax liability, the unused credit may be carried over for up to six years or until the credit is exhausted, whichever occurs first. For taxable years beginning on or after January 1, 2020, and before January 1, 2023, the total of all business credits including carryover of any business credit for the taxable year may not reduce tax by more than $5,000,000. The credits disallowed due to the limitation may be carried over. The carryover period for disallowed credit is extended, without regard to carryover provisions, by the number of taxable years the credit was not allowed. In no event can the credit be carried back and applied against a prior year’s tax. If you have a carryover, retain all records that document this credit and carryover used in prior years. The Franchise Tax Board may require access to these records.
Specific Line Instructions
Name of credit owner – Enter the name of the credit owner or the name of the entity that generated the tax credit. Also, enter the CA Corporation no., federal employer identification number (FEIN), or the California Secretary of State file number of the credit owner in the space provided. If the name shown on the California return is the same name as the credit owner, enter “same”.
If you are only claiming a credit that was allocated to you from a Schedule K-1 (100S, 541, 565, or 568), skip to Part II, line 4 and do not enter any information in Part I and in Part II, line 3.
Part I Credit Earned
Agreement number – Enter the agreement number that was approved by the California Competes Tax Credit Committee.
Credit earned – Enter the amount of credit earned this year.
Agreement number – Enter the second agreement number that was approved by the California Competes Tax Credit Committee.
Credit earned – Enter the amount of credit earned this year from a second agreement.
Part II Available Credit
S corporation, Estate, Trust, Partnership, or LLC
Allocate the line 5 credit to each shareholder, beneficiary, partner, or member in the same way that income and loss are divided.
Line 3 – Enter the credit amount from Part I, line 2.
Line 4 – Pass-through California Competes Tax Credit
If you received more than one pass-through credit from S corporations, estates, trusts, partnerships, or LLCs, add the amounts and enter the total on line 4. Attach a schedule of the pass-through entities showing their names, identification numbers, agreement numbers, and credit amounts.
Line 5 – Current year credit
S corporations, estates, trusts, partnerships, and LLCs (treated as partnerships), this is the amount of the credit to pass through to shareholders, beneficiaries, partners, or members. Additionally, if you are an S corporation, take this amount on line 5 and use it to complete Schedule C (100 S), column (a).
Line 5a – Current year credit S corporation
If you are an S corporation, enter 1/3 of the amount on line 5 here and on Schedule C (100S), column (a).
Line 6 – Credit carryover from prior years
Enter the amount of credit carryover from prior years on line 6. Do not include assigned credit carryovers on form FTB 3544, Part B, List of Assigned Credit Received and/or Claimed by Assignee.
Line 7– S corporations, add line 5(a) and line 6.
Line 8a – Credit claimed
Do not include assigned credits claimed on form FTB 3544, Part B.
This amount may be less than the amount on line 7 if your credit is limited by your tax liability. For more information, see General Information D, Limitations, and refer to the credit instructions in your tax booklet. Use credit code 233 when you claim this credit.
Line 8b – Total credit assigned
Corporations that assign credit to other corporations within combined reporting group must complete form FTB 3544, Part A, Election to Assign Credit Within Combined Reporting Group. Enter the total amount of credit assigned from form FTB 3544, Part A, column (g) on this line.
Part III Credit Recapture
Line 10 – Credit recapture
If a credit amount was recaptured, the taxpayer would have received notification from GO-Biz of the amount and the taxable year of the recapture. See the “Recapture” section of your credit agreement for further details.
Enter the total recapture here and on one of the following California tax returns or schedules:
- Form 100, California Corporation Franchise or Income Tax Return, Schedule J, line 5.
- Form 100S, Schedule J, line 5 and Schedule K-1 (100S), line 17d.
- Form 100W, California Corporation Franchise or Income Tax Return - Water's Edge Filers, Schedule J, line 5.
- Form 109, California Exempt Organization Business Income Tax Return, Schedule K, line 4.
- Form 540, California Resident Income Tax Return, line 63.
- Form 540NR, California Nonresident or Part-Year Resident Income Tax Return, line 73.
- Form 541, line 37 and Schedule K-1 (541), line 14d.
- Form 565, Schedule K, line 20c and Schedule K-1 (565), line 20c.
- Form 568, Schedule K, line 20c and Schedule K-1 (568), line 20c.
Part IV Credit Claimed
Complete this table if you claimed an amount on line 8a. Do not include assigned credits claimed on form FTB 3544, Part B.
Line 11, column (a) – Agreement number
Enter the agreement number that was approved by the California Competes Tax Credit Committee.
Line 11, column (b) – Enter the year the credit was earned.
Line 11, column (c) – Credit amount available for use
Enter the amount available for use in the current year. Do not include any amount previously claimed.
Line 11, column (d) – Credit claimed
Enter the amount claimed in the current year for each agreement listed. Do not include amounts claimed on form FTB 3544, Part B.
Note: If the credit was earned by a pass-through entity, the entity must provide the year the credit was earned, the agreement number, and the amount that was passed through to the shareholder, partner, or member.
Line 11, column (e) – Credit carryover
Subtract column (d) from column (c).