The City of Palmdale received designation from the State of California for the Antelope Valley Enterprise Zone in February 1997. Whether your company is a small, family-run business or a large corporation, you may take advantage of a number of tax incentives through the Antelope Valley Enterprise Zone. Any company located within the boundaries of the 61-square-mile Enterprise Zone may reduce its state business income tax through five tax incentives.

• Hiring Tax Credit
  
• Sales & Use Tax Credit
  
• Business Expense Deduction
  
• Net Operating Loss Carryover
  
• Interest Deduction for Lenders

The San Francisco Enterprise Zone Tax Credit is a credit against the San Francisco Payroll Expense Tax for new jobs created on or after January 1, 1992, pursuant to the San Francisco Payroll Expense Tax Ordinance, Section 906A, of the Business and Tax Regulations Code. It encourages business investment and provides an incentive for the creation of new jobs for targeted groups in economically distressed locations, known as the Enterprise Zone areas.

Who is eligible for the Enterprise Zone Tax Credit?
Any business or employer, as defined under Section 6.2-5 of the San Francisco Common Administrative Provisions, Business and Tax Regulations Code, shall be allowed a credit against the Payroll Expense Tax for creating new jobs and hiring qualified employees working in designated Enterprise Zone areas.

How much is the amount of the Enterprise Zone Tax Credit?
The tax credit, for each qualified employee, shall be a varying percentage of the additional tax that would be incurred as a result of additional wages paid for work performed within the Enterprise Zone areas. The dollar amount of such tax credit shall depend both upon the duration of employment (see below) and eligible wages.

Duration of Employment Tax Credit
First 24 months 100%
Second 24 months 50%
Third 24 months 25%
Fourth 24 months 15%
Fifth 24 months 10%

In no event shall the tax credit reduce a business’ tax liability to less than zero. For an example of how the Enterprise Zone Tax Credit is calculated, read the instructions for Column F on page 3 of the attached “Instructions For Completing the 2004 Enterprise Zone Tax Credit Worksheet.”

Richmond offers businesses a great opportunity to operate and if you have a company inside this region, there may be sizable tax breaks for you through the enterprise zone tax credits. The following is a summary of the five main tax incentives within the Enterprise Zone Program:

Hiring Credit

Hiring Credit for 50% of first year wages paid to qualified new employees; over a five-year period, this credit can exceed $26,000 per new hire.

Sales and Use Tax Credit

Sales and Use Tax Credit for sales and use tax paid on qualified equipment purchased for use within the zone – up to a $1 million of machinery cost on individual claims; up to $20 million a year on corporate claims.

Business Expense Deduction

Business Expense Deduction for the costs of certain tangible, depreciable property up to a range between $20,000 and $40,000 in the first year placed in service.

Net Operating Loss Carryover

Net Operating Loss Carryover to future tax years to reduce the amount of taxable zone income.

Net Interest Deduction for Lenders

Net Interest Deduction for Lenders making loans in the zone; lenders can deduct net interest income made on loans to trade or business located in the enterprise zone including business loans, mortgages and loans from non commercial sources.

The Stanislaus Enterprise Zone encompasses an area of approximately 67,000 acres and includes parts of Modesto, Ceres, and Turlock, as well as tracts of unincorporated areas in Stanislaus.

Goals of Stanislaus Enterprise Zone
• Business retention and expansion in geographic areas of Stanislaus County where economic conditions are not optimal.
• Business attraction to these same geographic areas.
• Help for low-income and disadvantaged residents in finding and retaining jobs; including the unemployed, victims of layoffs, and public assistance recipients.

Stanislaus Enterprise Zone Benefits
The State offers several tax credits, deductions, and incentives that reduce the cost of hiring new employees and investing in equipment within the EZ.  These credits, deductions, and incentives apply during the fifteen-year life of the EZ.   The Stanislaus County Economic Development and Workforce Alliance provides assistance to business and job seekers in targeted employment areas.

Credits, Deductions, and Incentives

State Tax Credits
• Hiring Tax Credit
• Sales and Use Tax Credit
• Business Expense Deduction
• 15 Year Net Operating Loss
• Net interest deduction

Modesto-only Incentives
• Local Incentive Zone rebates
• CFF Deferral Program

Alliance Assistance
• Business Assistance
• Job Placement Assistance
• Eligibility Screening
• Fast Track Permitting

Eligibility
All tax-paying businesses located within the Zone automatically qualify for California Enterprise Zone benefits; whether they are proprietorships, partnerships or corporations.

Vouchering (Hiring Tax Credit)
Vouchering is the process of screening and documenting new hires to determine if the employee qualifies a business for the Hiring Tax Credit.  The Hiring Tax Credit is the only credit that requires a signed voucher by the requires a signed voucher by the If an employer hire new employees or is planning an expansion, this tax credit can save the employer thousands of dollars.  By hiring “qualified” employees, employers can claim up to 50% of the employee’s wages in the first year of employment.  The credit percentage decreases by 10% annually, phasing out after 5 years.

The credit applies to new hires and replacements due to turnover or expansion.  It is based on the lesser of the following:
• The actual hourly rate paid to the employee; or
• 150% of the California minimum wage.

The California Housing and Community Development Department has a $10 filing fee per voucher.  In addition, there is a $40 local processing fee per person referred for eligibility and vouchering.

Shafter is designated as a State Enterprise Zone, which makes a company investing in Shafter eligible for tax credits against their California corporate income tax liability. The two most important credits include a hiring tax credit on qualified employees which can amount to over $31,000 per employee over a five-year period; a sales/use tax credit on the first $20 million of new or used manufacturing equipment purchased each year.

Some equipment within certain warehouse/distribution centers may qualify for the sales tax credit. The specific details of the client’s operation will need to be reviewed with the Franchise Tax Board and they will need to make a determination on eligibility.

Other Benefits

• 15-year carryover of up to 100 percent of the net operating losses;
• Expensing up to $15,000 of certain depreciable property;
• Lender interest income deductions for loans made to zone businesses;
• Preference points on state contracts.

This credit can be obtained by submitting the appropriate tax form to the Franchise Tax Board.

Enterprise Zone Tax Credits

As a state designated enterprise zone, new and existing businesses may qualify for State tax credits, including:

Sales Tax Credit – California income or franchise tax may be reduced by the amount of sales and use tax paid on certain machinery purchased for use in the enterprise zone. The equipment must be used to manufacture, process combine or fabricate a product. The sales and use tax credit may be carried over to offset tax imposed in subsequent years.

Hiring Credit – A business may reduce taxes paid by up to 50% of the amount of wages paid to one or more qualified employees. These state credits are in addition to any federal tax credits. A qualified employee is a new hire that are participants in a qualified job development or training program. Business may earn credits of up to $24,000 per employee over a five year period.

Business Expense Deduction – Part of the cost of certain property purchased for exclusive use in an enterprise zone may be deducted as a business expense in the first year it is placed into service. The type of property qualifying for the credit is tangible personal property (not real estate) which is used for business purposes and is eligible for depreciation.

Net Operating Loss Carryover – Net operating losses (NOL) of individuals and corporations doing business in the enterprise zone may be carried over to future years to reduce the amount of taxable income generated in the enterprise zone and is determined by computing the business loss which results from business activity in the enterprise zone.

Manufacturers’ Investment Credit – The Manufacturer’s Investment Credit provides manufacturers a State Income Tax Credit of 6% of the purchase price of qualified property. The Credit may be carried over for up to 7 years from the date of purchase.

The New Regional Enterprise Zone of Merced County has granted conditional desgination on Deember 17, 2006 allowing businesses to claim valuable tax credits.  The Enterprise Zone provides business-related tax incentives for corporations and individuals who operate or invest in a business located within a designated Enterprise Zone.

Sales and Use Tax Credit: California income or franchise tax may be reduced by the amount of sales or use tax paid on certain manufacturing machinery purchased for exclusive use in an Enterprise Zone.

Hiring Credit: A qualified business may reduce taxes by up to 50% of the amount of wages paid to one or more qualified employees. These state credits are in addition to any related federal tax credits.

Net Operating Loss Carryover: Individuals or corporations in an Enterprise Zone may carry over net operating losses (NOL) to future years to reduce the amount of taxable income for those years.

Business Expense Credit: Part of the cost of certain property purchased for exclusive use in an Enterprise Zone may be credited as a business expense in the first year it is placed in service.

Net Interest Deduction for Lenders: A deduction from income is allowed on the amount of “net interest” earned on loans made to a business located in the Zone.

Personal Incentives: Employees may claim a tax credit to reduce the amount of their income tax on wages earned in the Zone.

Public/Private Financing Partnerships

Revolving Loan Fund: The Merced County Department of Business-Economic Opportunities operates a Revolving Loan Fund (RLF). The RLF is used for gap financing and its goal is job creation. One permanent job must be created or retained per $10,000 RLF dollars loaned. The maximum loan is $375,000.

Commercial Rehabilitation Loan Program: The Merced Redevelopment Agency operates a loan program for the renovation and remodeling of structures within Redevelopment Project Areas. The interest rate is six percent and loan terms range from 10 to 15 years.

Disposition and Development Agreements: The DDA is another flexible tool available to the Merced Redevelopment Agency which can provide substantial help to property owners or developers of projects within the Project Area. DDA’s are set through individual negotiations on specific projects. Assistance can be in the form of low-interest financing, cost-sharing for public improvements, or other assistance. Projects must receive direct approval from the Redevelopment Agency Commission.

Foreign Trade Zone: A US Foreign Trade Zone (FTZ) is a designated area which, for Customs purposes, is considered outside the US. Nearly any imported merchandise can be brought into a Zone for almost any kind of manipulation, duty-free. In December 1997, the City of Merced became part of the Merced County Foreign Trade Zone. This FTZ encompasses seven Central Valley counties including Stanislaus, Merced, Mariposa, Madera, Fresno, Kings, and Tulare. Benefits that may be available to your company include duty deferrals, duty elimination, duty reductions, and custom fees reduction.

Recycling Market Development Zone: The Merced/Atwater Recycling Market Development Zone program offers assistance to businesses who stimulate markets for recycled material. The assistance includes recycling equipment tax credit, technical assistance, and many local business incentives. In addition, the program provides low interest loans for 50% of the project, up to a maximum of $1 million.

How would your business like to use thousands of dollars from tax savings and incentive programs to reinvest into your company and your employees? In 1997 Lindsay businesses took advantage of over 6 million dollars in enterprise zone savings. The Lindsay Enterprise Zone Program offers existing and new businesses a variety of tax and other incentives which can reduce the cost of doing business and increase revenues.

Any business located within the city limits of Lindsay is eligible for these exciting tax savings and incentive programs. Enterprise zones have been carefully located throughout the State in communities, like Lindsay, that are pro-business. To ensure a long-term relationship between business and local government, the City of Lindsay has made commitments to expedite permit processing, reduce construction and permit-related fees, and provide assistance in employee hiring and training while offering a number of state tax credits to Lindsay businesses.

Take a look at some of these great State tax credits:

• Hiring Credit…up to $26,894 per employee
• Sales Tax Credit…up to $1.2 million on machinery and parts purchased
• Up front expensing of depreciable property
• Tax-free interest income for lenders
• 100% net operating loss carryovers

Hiring Tax credit: A qualified business may reduce tax by the amount of wages paid to one or more qualified employees.

• 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

Qualified wages are wages paid up to 150 percent of minimum wage. As of March 1, 1998, the maximum hourly wage on which this credit may be based is $8.62. Qualified employees are those employees: residing in Lindsay’s targeted employment area (approximately 95% of City); receiving subsidized employment, training, or services under the terms of federal Job Training Partnership Act (JTPA); registered in any welfare to work program; displaced by other area businesses or long-term unemployed.

At least 90 percent of the qualified employee’s work must be directly related to a business activity located in the Zone and 50 percent of the employee’s work must be performed within the Zone boundaries. The credit must be reduced by any federal or state targeted jobs tax credit claimed.

Example: A Zone business hired 15 new employees, of which 10 meet the definition of “qualified” employee. These ten employees earn $8.62/hour and work 40 hours a week for 52 weeks a year; the tax credit for each employee is 50 percent of the first year wages or 8,964.80; the total first year tax credit for the ten employees would be $89,648.00; the total five year tax credit for each employee would be $26,894.40; the total five year tax credit for the 10 employees would be $268,944.00.

Simply stated, a business hiring 10 qualified employees for a five year period would be eligible for over a quarter of a million dollars in state tax credits over a five year period, monies that can be used to reinvest in your business.

Sales and Use Tax Credit:  The credit is equal to the amount of the sales/use tax paid or incurred for the purchase of qualified property. The combined purchase price of the property, in any year, cannot exceed $1,000,000 for individuals or $20,000,000 for corporations.

Qualified property is defined as machinery and machinery parts used to manufacture, process, combine or otherwise fabricate a product; produce renewable energy resources; control air or water pollution. The property must be used exclusively within the boundaries of an enterprise zone. Excess credit may be carried over to future years until it is used up.

Example: A Zone business purchases $10,000,000 in new machinery to set up a new production line for its operation. The business has a tax liability of $150,000. The credit earned is 6 percent of $10,000,000 or $600,000. Since the tax liability is only $50,000, the credit is $150,000 for that tax year. The $450,000 in unused credits may be carried over to future years until it is used up.

Note: If this business were a sole proprietorship or a partnership, the amount of purchase upon which the credit may be claimed would be limited to $1,000,000 and the credit to $60,000.

Net Interest Deduction: Interest earned on investments in a trade or business located in an enterprise zone is free from California tax.

Qualified investments include business loans, mortgages, and commitments of venture capital. The investment must be made in a trade or business located solely within an enterprise zone. The money loaned or invested must be used strictly for business activities within the enterprise zone, and the lender or investor must not have any equity or other ownership interest in the trade or business.

The full amount of interest, less any allowable expenses incurred in making the investment, is deductible from income if each of these provisions apply.

Example: A small business borrows $50,000 at 15 percent interest from a bank for marketing and equipment. The bank may deduct the interest income. A small business borrows $100,000 at 15 percent interest to renovate a building in an enterprise zone from family of the owners. The lenders may deduct the interest income.

Net Operating Loss Carry-Over: Net operating losses (NOLs) of individuals or corporations doing business in an enterprise zone may be carried over to future years to reduce the amount of taxable enterprise zone income for those years.

A net operating loss is defined as a loss attributable to the taxpayer’s business activities within the enterprise zone as defined in the year of loss. The carryover may extend up to 15 years or the period of time the area remains designated as a enterprise zone. The loss can be applied only to income earned in the enterprise zone, and the loss occurs strictly from business activity in the enterprise zone. The credit may not be applied to tax years prior to the year in which the loss occurred (no “carrybacks”). Part-year residents of California must prorate the credit.

Example: A company opens a new headquarters in the enterprise zone. In the first year of operation the company incurs a major loss leading to a large net operating loss. The portion of the loss attributable to the enterprise zone business, based on formula apportionment, may be carried over to succeeding taxable years where a net operating income is earned for up to 15 years after the loss, until the deduction taken is fully offset by net operating income. The income against which the loss carryover may be applied is determined by an apportionment formula based on the percentage of sales, payroll and property of the company located within the enterprise zone.

Business Expense Deduction: Part of the cost of certain property purchased for exclusive use in an Enterprise Zone may be deducted as a business expense in the first year it is placed in service. The amount of deduction is as follows:

• Tax years 1996 and 1997: $5,000
• Tax years 1998 and 1999: $7,500
• Tax years 2000 and forward: $10,000

Qualified property is defined as tangible, personal property (not real estate) which is used for business purposes and is eligible for depreciation; this includes most equipment, furnishings, and vehicles purchased for exclusive use in an enterprise zone, but not office supplies or other small items which are not normal depreciated.

Example: A taxpayer purchases machinery for use in the enterprise zone at cost of $7,500 and places it in operation in 1998. The deduction for the first year would be the full $7,500.

Located in the heart of California’s San Joaquin Valley, Kings County offers a combination of a plentiful and productive workforce at competitive wage rates. Major highway, rail and air service linking to metropolitan markets and it’s pro-business attitude make Kings County the right place to grow your business.

Industries locating or expanding in Kings County can access numerous pro-business incentives such as:

• Hiring Tax Credits – Firms can earn $31,574 or more in State tax credits for each qualified employee hired.
• Sales and Use Tax Credit – Zone companies may receive a sales tax and use tax credit for manufacturing or processing machinery, data processing and communications equipment and motion picture manufacturing equipment central to production and post production, to be used in the Zone. Individuals can claim a credit on the first $1,000,000 of qualifying purchases, while corporations can claim credit on the first $20,000,000 per year.
• Business Expense Deduction – Up front expensing of certain depreciable property.
• Net Operating Loss Carryover – Up to 100% of the NOL may be carried forward for 15 years.
• Net Interest Deduction – Lenders to Zone business may receive a new interest deduction.
• Unused tax credits – Can be applied to future tax years.
• Preference Points – Enterprise Zone companies can earn preference points on state contracts.

The City of Fresno was originally granted an Enterprise Zone designation in October 1986.  This zone expired on October 14, 2006.  At this time the City of Fresno has received a “conditional designation” for a brand new Enterprise Zone.

Businesses in the zone – from large manufacturing companies to small neighborhood restaurants – can significantly reduce their state income taxes by taking advantage of special California Enterprise Zone tax benefits.

Located within the Fresno Enterprise Zone borders are affordable manufacturing and commercial sites, as well as unique retail locations.  The zone is within immediate access of two freeways, two state highways, the Fresno Yosemite International Airport and the Downtown Chandler Airport.  It is also in close proximity to a wide range of educational facilities, housing and other amenities.  These assets add up to an increasingly powerful ability to assist current businesses and attract new companies, jobs and investments.

A business located within the Enterprise Zone can receive tax credits each time it hires an eligible employee or purchases qualified new machinery, equipment or pollution control devices.  Incentives are also available to many employees who work in the zone and lenders who make loans to qualified businesses.  Most businesses in the Enterprise Zone are automatically eligible for benefits.  There is no certification process.

If you are in the Fresno Enterprise Zone, or you want to know if you are, contact us directly by clicking here.  C & I Tax Consultants are here to help you receive the full tax credit that you are entitled to.

City of Delano Enterprise Zone: The City of Delano Enterprise Zone was first established in 1991. In November 2006, Delano received conditional approval for a new, expanded Enterprise Zone that now includes all businesses within the City limits and some County unincorporated areas.

What have the Enterprise Zone benefits done to assist Delano?

The City of Delano’s Enterprise Zone Record Since 2000:

• Attracted five new businesses to Delano, providing a total of 1,710 new jobs
• Retained or expanded two businesses in Delano, saving 20 jobs
• Invested or committed to spend over $2.5 million for local infrastructure improvements to attract new businesses to Delano.
• Processed Hiring Tax Credit Vouchers for over 3,500 qualified employees
• Created a new Enterprise Zone. More than 1,200 Delano businesses are now eligible to receive the Hiring Tax Credit.

The major benefits of the Enterprise Zone program are the tax savings on California business income tax. These include:

• Sales or Use Tax Credit: A tax credit against the purchase of new manufacturing, assembly, data processing or communications equipment equivalent to the amount of sales or use tax, or up to $1.35 million annually.
• Hiring Tax Credit: A tax credit on up to 50 percent of the wages to qualified new employees over a five-year period (up to 50 percent in the first year, 40 percent in the second year, etc.). Effective January 1, 2008 the maximum credit will be over $37,000 per employee.
• Accelerated Depreciation Deduction: The option to accelerate depreciation on business property. A business may treat 40 percent of the cost of qualified property as a business expense in the first year it is placed into service for a maximum deduction of $20,000 per year, whichever is smaller.
• Loss Carry Forward: All net operating losses may be carried forward as a deduction for fifteen years.
• Net Interest Deduction for Lenders: Allows lenders a deduction on the net interest earned from loans made to Enterprise Zone businesses. Qualified loans include business loans, mortgages and loans from noncommercial sources.
• Preference on State Contracts: Enterprise Zone businesses receive special points when bidding on State contracts.

Other advantages include:

• One stop, expedited permit process
• Career Services Center provides free job referral service that helps employers find qualified employees whose wages can be claimed as tax credits
• Access to business and technical assistance programs
• Access to specialized technical and financial assistance programs
• The Enterprise Zone pursues state and federal grants to benefit Enterprise Zone businesses
• The Career Services Center provides convenient Hiring Tax Credit Voucher processing