How tax breaks aim to keep companies growing in California
You’re going to Disney World. So why not offset the cost by getting paid to answer a few questions on your mobile phone?
You’re shopping at Wal-Mart. The store wants to know whether you’re happy. Your phone pings as you walk out and, easy-peasy, you pick up a few extra dollars.
You’re at the movie theater. How did you like those trailers for upcoming attractions? Share your opinions on your phone, and cash in.
An Irvine-based firm that pays consumers for their opinions, MFour Mobile Research, is one of 114 California companies just granted a total of $91.4 million in income tax credits over five years for expanding within the state.
In the latest round of awards from Gov. Jerry Brown’s Go-Biz program, announced last week, the biggest sums are going to large corporations. General Motors got $8 million for its self-driving car business in San Francisco. Electric bus manufacturer Proterra Inc. gained $7.5 million for investments in Burlingame and in the City of Industry.
But many of the companies that profit from the program, which awarded $240 million in credits this fiscal year, are small, innovative and fast-growing businesses such as MFour.
MFour has a million active users of its “Surveys on the Go” app, the largest mobile research panel in the United States. It pays out $10,000 a day for opinions on everything from news to sports to supermarket snacks to tech gadgets. The company, which in four years has grown from 10 to 91 employees, will get a tax credit of $680,000 over five years.
“We’re thrilled,” said CEO Chris St. Hilaire. “Any time you can deploy funds to grow the business instead of paying taxes, in the long run you are more of a benefit to the community and to employees.”
Under MFour’s agreement with Go-Biz’s “California Competes” program, the company must grow to at least 125 employees by 2021, with an average annual salary of $62,000. It also will be required to invest $1.05 million in computer equipment, furniture and tenant improvements in Irvine.
If companies don’t fulfill their commitments, the tax credits are rescinded and, in some cases, back taxes must be repaid.
California Competes, enacted in 2013, is up against a raft of incentive programs in states such as Texas, Nevada and Tennessee that have lured many local and national businesses.
In 2014, Toyota got $40 million worth of incentives to relocate its U.S. headquarters from Torrance to Plano, Texas. That same year, Nevada assembled a tax package worth $1.25 billion over 20 years to capture Tesla’s giant battery factory.
Since 2014, GO-Biz has allocated $492.5 million to 688 companies projected to create 70,747 new jobs and make $14.4 billion in new investments.
“We thought about expanding in other states,” said MFour’s St. Hilaire. “We looked at Arizona and Tennessee. But if California makes it easier to expand here, we will.”
Nonetheless, he added, “We don’t preclude creating satellite offices elsewhere in the future. Other states have development talent. It depends how quickly we can find the skill sets we need.”
Another small tech company, Matterhackers, which customizes, assembles and distributes 3-D printers, was awarded a five-year tax break of $380,000. It plans to invest $1.2 million to expand its Lake Forest facility and grow its workforce from 20 to 97 employees at an average salary of $45,000.
The tax break is “a good incentive to help our company grow faster,” said Chief Executive Lars Brubaker. His customers include not just businesses, but individuals making their own surfboard fins, drone components, Comic-Con costumes and even prosthetic limbs for the disabled.
State incentives to attract businesses have been criticized as corporate welfare, as some question whether the costs outweigh the benefits, and whether the investments might have occurred without tax breaks. Nonetheless, few states believe they can afford to avoid the competitive game.
Of the 114 companies gaining California awards last week, 10 have operations in Orange County. Besides MFour and Matterhackers, they include Irvine-based Montrose Environmental Group, a fast-growing pollution testing firm, with 46 offices nationwide. Montrose got a $750,000 tax break for plans to expand its California workforce from 318 to 381, and invest $6.2 million in Irvine, Berkeley and San Diego.
Eight companies with Inland Empire locations got credits, including Safeway Inc., which gained $1.25 million for its plan to hire 51 workers and invest $23 million to expand food manufacturing in Merced and Riverside. United Material Handling, a warehouse company, got $1 million for plans to invest $9.6 million in Perris.
Twenty-three companies with Los Angeles County operations got tax breaks. In the case of Proterra, the electric-bus manufacturer, the credit was approved despite concerns raised by the United Steelworkers over whether the company has failed to create promised jobs in South Carolina in exchange for tax incentives there.
Ken Leacock, Proterra’s director of government relations, did not dispute that job growth in South Carolina has fallen short and said the company is in talks with state officials to remain in compliance. The electric bus market was slow to take off but Proterra now has a backlog of orders and is expanding rapidly, he added.
Other large awards for companies with Los Angeles County operations included $4.3 million for Santa Monica-based Hulu LLC, an online video service, and $2.5 million for Honey Science Corp., a software company that applies coupons to shoppers’ orders.