1. Tax Notes Newsletter California Competes Credit Applications Being Accepted Through April 14 Sandy Weinberg, Principal, Director of State and Local Taxation California has recently revamped its tax incentive and credits opportunities. New items include a sales and use tax exemption for manufacturers and companies conducting scientific research, a new hiring credit, and an income tax credit called The California Competes Tax Credit (hereafter CCC). To take advantage of the CCC in 2014 taxpayers must move quickly. Though only recently introduced, the California Governor's Office of Business and Economic Development (nicknamed GO-Biz) is only accepting applications through April 14, 2014. The CCC is unique because there are no specific criteria leading to its award. In fact, businesses must compete for a portion of the credits made available every fiscal year, and must negotiate credit agreements with GO-Biz for part of the pool. $30 million of tax credits are available this year to reduce business income and franchise taxes for eligible companies. That number increases to $150 million in fiscal 2014-15 and $200 million thereafter through 2017. Credit awards will be based on the following factors, all related to a taxpayers California business: Number of jobs created or retained Compensation paid or proposed to be paid (inclusive of fringe benefits) California investment Unemployment or poverty in business location Other incentives available to the business, both in/out of California, including those from state/local governments and other entities Duration of the businesses proposed project and the commitment to California Overall California economic impact from the business Strategic importance to the state, region, or locality Opportunity for future growth and expansion Extent to which the anticipated benefit to California exceeds the projected tax credit benefit to the business The application process has two phases. Phase I includes completion of an online form stating the credit requested and the aggregate employee compensation/investment package. The credit will be divided by the investment and compensation amounts to create a cost-benefit ratio. GO-Biz will use that ratio to identify the most competitive applicants, which must satisfy a second set of tests. Sandy Weinberg Principal sweinberg@odpkf.com 203.323.2400

2. Phase II applicants will be evaluated based on several factors, including the extent of unemployment or poverty in the proposed investment area, other available incentives, number of employees, strategic importance of the business to the state, and the opportunity for additional expansion. The regulations also call for a negotiation that will consider incentives offered by other states and the extent to which the anticipated benefit to California exceeds the anticipated benefit to the taxpayer. GO-Biz will request supporting evidence from the business. If accepted, the CCC will be finalized in an agreement between the taxpayer and GO-Biz specifying the tax years, minimum compensation provided to new full-time employees, whether the credit will be provided in increments based on mutually agreed-upon milestones, and recapture provisions. The terms of the contract (other than privileged and confidential information) will be made public. Once the agreement is approved, GO-Biz will notify the California Franchise Tax Board, which will enforce the agreement. Twenty five percent of the CCC is set aside for small businesses having aggregate annual gross receipts of less than $2 million. GO-Biz must make awards by the start of the next fiscal year on July 1. As noted above, California businesses need to act by April 14th if they wish to take part in this process. About OConnor Davies, LLP: O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of serving clients both domestically and internationally and providing specialized professional services of the highest quality. With roots tracing to 1891, seven offices located in New York, New Jersey and Connecticut, and approximately 500 professionals including 84 partners, the Firm provides a complete range of accounting, auditing, tax and management advisory services. OConnor Davies is ranked as number 32 in Accounting Today's 2014 "Top 100 Firms" in the United States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield County Business Journals. OConnor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Our firm provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to another party any transaction or matter addressed herein. Contact: New York, NY 212.286.2600 212.867.8000 Harrison, NY 914.381.8900 Stamford, CT 203.323.2400 Paramus, NJ 201.712.9800 Cranford, NJ 908.272.6200 New Windsor, NY 845.220.2400 Wethersfield, CT 860.257.1870