Tala Enterprise, a clothing maker that idled its denim line in China to bring its production back to the United States, officially opened a new knitwear manufacturing plant in the Coachella Valley Enterprise Zone.

“Assemblyman V. Manuel Pérez noted that the plant’s opening in the Coachella Valley Enterprise Zone comes at a critical time when California has frequently been labeled as unfriendly to business.

The very existence of this new business illustrates the importance of the state’s enterprise zones, which provide companies extra benefits to open, the Coachella Democrat said.”

Read the full article.

Hildy Carrillo, executive director of the Calexico Chamber of Commerce wrote an op-ed piece today in the Imperial Valley News about the great benefits of the EZ program and urged its continued existence especially in light of the current economic conditions.  The entire piece can be read here.

Three years after Santa Clarita’s enterprise zone went into effect, the business community is pushing to have it expanded to cover more of the valley.

California’s 42 enterprise zones are intended to boost business in disadvantaged areas by providing tax breaks for businesses that hire workers who meet certain criteria, from laid-off workers to veterans, and for specific projects such as business expansions.  Here is the link to the full article.

Craig Johnson’s article in this weekend’s Long Beach Press Telegram highlights the importance of the Enterprise Zone in a recessed economy.  He cites Cal Worthington Ford as the classic example of what can happen without the EZ as a tool to retain California businesses.  Here’s the link to the article.

This article appeared in this weekend’s Hesperia Star.

“We took over the station about a year or so ago and we moved to San Bernardino about two or three months ago,” said David Goran, one of the station’s four principals.

Considering that California is in the middle of one of the largest job crises in recent history, it seems like only a matter of time until state politicians realize the importance of the Enterprise Zone program and its effect on local economies.

What are the incentives?
The following incentives are available through the State of California, from which the following summary was obtained:

Hiring Tax Credits
EZ businesses can earn up to $31,574 in State tax credits for each qualified or voucher employee hired over a five-year period.  Refer to The Alliance for information about eligibility criteria to determine whether an employee qualifies for this credit.

Sales & Use Tax Credits
EZ businesses may receive the sales or use tax credit for the purchase of manufacturing or processing machinery, data processing and other equipment used in the EZ.  Individuals, partnerships, subchapter S corporations, and limited liability companies can claim a credit on the first $1,000,000 of qualifying purchases per year, while corporations can claim credit on the first $20,000,000 of purchases per year.

Business Expense Deduction
Up front expensing of certain depreciable property can be claimed.

Preference Points
EZ businesses can earn preference points on state contracts.

Operating Loss Carryover
Up to 100% of the Net Operating Loss may be carried forward for up to 15 years.

Net Interest Deduction
Lenders to EZ businesses may receive a net interest deduction.

Unused Tax Credits
Unused tax credits can be applied to reduce future tax liability.

A business located in the Watsonville Enterprise Zone (see map) can take advantage of tremendous tax credits offered by the State of California. Below are some of the tax credits, for more information go to Economic Development Areas (EDA).

Hiring Tax Credit

Businesses may reduce state taxes by up to $37,440 per qualified employee over a five-year period. Qualified employees are new employees who are hired to work at least 50% of their time within the Enterprise Zone and meet ONE of the following criteria:

• Resident of the Targeted Employment Area (see TEA map) or
• Participant or eligible for services from the Santa Cruz County Career Works program (Calworks/WIA) or
• Dislocated and/or unemployed or
• Seasonal worker or
• Public assistance recipient or
• Work Opportunity Tax Credit eligible or
• Veteran or
• Native American

The Redevelopment and Housing Department determines eligible employees and issues the vouchers allowing businesses to take advantage of the tax credit. The City of Watsonville offers workshops for businesses currently participating in the EZ program and also for those businesses wanting more information on how to participate. Please contact Jacqueline Ventura to obtain applications for vouchers or to attend the next informational workshop at: 831-768-3095 or jventura@ci.watsonville.ca.us

Sales and Use Tax Credit

Businesses can substantially reduce their California income or franchise tax obligations by taking advantages of this tax credit. In any year, companies may claim a tax credit equal to the tax paid on certain machinery purchases to be used exclusively within the boundaries of the Watsonville Enterprise Zone. Individuals and partnerships may make this claim on the first $1 million of machinery purchased; corporations may claim the credit on the first $20 million of machinery purchased in any one year. For more information, contact the California Franchise Tax Board at (916) 845-3464 or http://www.ftb.ca.gov.

Business Expense Deduction

Businesses may deduct part of the cost of tangible property as a business expense in the first year it is placed in service. This includes most equipment and furnishings purchased for exclusive use in the Zone (excluding real estate). Depending on the date the property was placed in service, relative to the Enterprise Zone Final Designation, the amount deducted per property can be as much as $20,000. For more information, contact the California Franchise Tax Board at (916) 845-3464 or http://www.ftb.ca.gov.

Net Operating Loss Carryover and Net Interest Deduction for Lenders

Individuals or corporations in an Enterprise Zone may carry over up to 100% (versus 50%) of net operating losses (NOL) to future years to reduce the amount of taxable income for those years. The NOL carryover is determined by computing the business loss, which results strictly from business activity in the Enterprise Zone. (Suspended for 2002, 2003) Individuals, non-commercial lenders and commercial institutions may deduct the net interest earned on a loan to a business operating solely within the Watsonville Enterprise Zone. The net effect could be a 3 to 4% increase on return-on-investment! Net interest deductions are for the life of the Enterprise Zone.

In 1985, California legislation was passed enabling the designation of  “Enterprise Zones” throughout the state. The purpose of the Enterprise Zone program is to provide tax incentives to businesses, thereby encouraging and bolstering private sector market forces in target areas.

Enterprise Zone companies earn tax credits by hiring participants in the Workforce Investment Act (WIA), Cal Works and the One Stop Services Department.

Business Investment Incentives /Tax credits and benefits to qualified companies are:

• Up to 100% Net Operating Loss carry-forward. NOL may be carried forward 15 years.
• Firms can earn $37,440 or more in state tax credits for each qualified employee.
• Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts.
• Up-front expensing of certain depreciable property.
• Lenders to zone businesses may receive a net interest deduction.
• Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment.
• Enterprise Zone companies can earn preference points on state contracts.

Other State investments include State contract bid preference points; low-interest small business loans; and lender’s deduction of interest income earned on loans to businesses in the Zone. Also qualifying new employees can claim tax credit on their State Income Tax.

Calexico Administrative Incentives

The City of Calexico offers these administrative incentives to new and expanding businesses:

• Fast-tracked building permits
• Waiver of building permit, plumbing and electrical fees
• Rebate of business license and refuse collection fees for a two year period.

How much can My Business Save?

The answer depends totally on the tax position of your business and the nature of your business investments. A large manufacturer with significant equipment investments and equipment investments and many new employees save literally hundreds of thousands of dollars, while another business might make investments which do not meet the qualifying criteria. It is best, therefore, to be aware of the tax benefits and make investment decisions accordingly. It should be noted that many of the investment incentives consist of State tax credits, which can be claimed against a tax liability, and therefore, are more valuable than tax deductions.

California Income Tax Effect of The Employer’s Tax Wage Credit

Summary

An employer may claim a credit against its income tax liability for a percentage of wages paid to qualified employees.

Amount of Credit

50% of qualified wages in Year 1
40% of qualified wages in Year 2
30% of qualified wages in Year 3
20% of qualified wages in Year 4
10% of qualified wages in Year 5

Click here to read the full summary from the city (PDF Download Link).