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.

As reported by the Mohave Daily News, the city of Needles, CA, is planning today to submit an official application to the state in order to become a qualified Enterprise Zone.  With the current economic environment in California, if Needles is accepted, the city could begin attracting companies that are moving away from the large municipalities in order to cut costs and augment revenues.

Marj Dario also noted in the article, “City Manager Bill Way suggested that application sections be assigned to several subcommittees.  Those subcommittee topics are: program and marketing goals; five-year commercial/industrial retention, expansion and attraction plans; data collection; financial; job development; and local incentives. NEDC members have been assigned to the subcommittees.”

This news once again establishes the value of the California Enterprise Zones and their expanding visibility to the public.  If you have a company that is in an enterprise zone, contact us in order to see what credits you qualify for.

The City of Pittsburg is one of only 39 state designated Enterprise Zones.  The Enterprise Zone Program offers state tax credits to businesses located within a designated Enterprise Zone.  Additionally, each local jurisdiction is encouraged to offer Local Incentives to the businesses located within each Enterprise Zone.

The City of Pittsburg has adopted the Fee Waiver/Reduction Program to encourage investment and community revitalization within Pittsburg’s Zone by providing fee waivers or reductions for the improvement of property located within the Zone.  The Program offers a 100% fee waiver for City development fees associated with the rehabilitation of existing commercial buildings and a 50% fee waiver for City development fees associated with brand new commercial construction.

Credit Overview:

Hiring Tax Credits.

The Hiring Tax Credits tend to be the most lucrative for most enterprise zone businesses. The credit is based on qualified wages paid to qualified employees. In order for an employee to be qualified he/she must have been hired after the zone was designated and before it expires and the employee must meet one of the program’s eligibility criteria at the time of hire, including but not limited to the following:

• Economically disadvantaged
• Eligible for public assistance
• Disabled individuals
• Dislocated workers
• Certain veterans (all veterans from the Vietnam era)

Qualified wages are defined by the portion of wages that do not exceed one hundred fifty percent (150%) of minimum wage. One hundred fifty percent of the current minimum wage ($8.00 – Effective 1/1/08) is $12. Therefore if an employer is paying a qualified employee $15.00 per hour, only $12.00 will be eligible for computing the hiring tax credit. To compute the hiring tax credit the following percentages of qualified wages are used:

• 50% during the 1st year of employment
• 40% during the 2nd year of employment
• 30% during the 3rd year of employment
• 20% during the 4th year of employment
• 10% during the 5th year of employment

Although Pittsburg’s zone expired January 10, 2008, as long as the employee is hired on or before that date, the hiring credit will be good for a full five year period beginning on the date of hire. Consider the following example where an employer has 20 qualified employees each earning $15 per hour ($12 cap is
used for the calculation) and each employed full time for a cumulative total of 41,600 hours per year and the employees were all hired on January 1, 2008:

• Year 1 credit (2008): $249,600
• Year 2 credit (2009): $199,680
• Year 3 credit (2010): $149,760
• Year 4 credit (2011): $ 99,840
• Year 5 credit (2012): $ 49,920
• Total 5-year credit: $748,800

Now consider the following example that illustrates how small businesses with few employees can benefit from this program as well. An employer has 2 qualified employees each earning minimum wage ($8.00) and each working 20 hours per week for a total of 1,040 hours per employee, per year:

• Year 1 credit: $ 8,320
• Year 2 credit: $ 6,656
• Year 3 credit: $ 4,992
• Year 4 credit: $ 3,328
• Year 5 credit: $ 1,664
• Total 5-year credit: $24,960

The hiring credit is limited to tax on income earned in the zone. If a business has two locations and one is located in the enterprise zone and the other one is not then a formula based on the percentage of property and payroll in the enterprise zone is used to compute the hiring credit. The credits cannot be used for a net gain but unused credits can be carried over until exhausted.

All qualified employees must be certified or vouchered in order for the California Franchise Tax Board to recognize an eligible employee. Eligible employees can be vouchered through the City of Pittsburg’s Economic Development Department.

Sales and Use Tax Credit

The Sales and Use Tax credit is a credit in the amount of sales or use tax paid or incurred for the purchase of qualified property.  In order for property to qualify the property must have been purchased and placed in service after the zone designation date and before the expiration date and the property must be used exclusively in the zone. Qualified property includes:

• Machinery and machinery parts used for: Fabricating, processing, assembling or manufacturing, Used to produce renewable energy sources, Used for air or water pollution control mechanisms

• Data processing and communications equipment, such as computers, copy machines and telephone systems
• Motion picture manufacturing equipment such as cameras, recorders and sound processing equipment

The property must be purchased in California in order to qualify for the credit unless the property of a comparable quality and price is not readily available in California. The yearly limitation for individuals is the first $1 million of qualified property purchased. As with the hiring credit, the sales and use tax credit is limited to tax on income earned in the zone.

Consider the following example, a company spends $50,000 to purchase machinery used to manufacture wooden toys. The sales tax paid (8.25%) for the purchase is $4,125. That company may reduce the amount of tax imposed on the enterprise zone income by up to $4,125.

If your business is located in the Oakland Enterprise Zone then you may be leaving significant dollars on the table that can benefit your business.

Case Study:

An Oakland business with less than 40 employees was able to generate over $50,000 per year in California Enterprise Zone Credits.  This was money that the business was able to use to make additional investments in business property and enhance the employee benefit plan it offers to its employees.

Is Your Company Located in Oakland or Planning to Move There?
If you are located in Oakland, you should check to see whether your location falls within the Oakland Enterprise Zone.  By simply having a location in the Oakland Enterprise Zone, a business is eligible to take advantage of certain business incentives (credits, deductions, etc.).

Please review the available map or street listing of the Oakland Enterprise Zone to see if your location falls within the qualified area.

Want to Know If an Employee Is Eligible for the Hiring Tax Credit?
If you would like to know if an employee qualifies for the hiring tax credit, complete the Oakland Voucher Checklist and submit the required information to the Enterprise Zone Coordinator. Click here for a list of supporting documentation accepted for each category.

Where is the Oakland Targeted Employment Area (TEA)?
Oakland’s TEA is one of the largest in the state.  See the published street ranges listings to determine whether an address falls with the qualified area.

This past week was an exciting time for one key California Enterprise Zone.  On November 17th, the Santa Clarita Signal reported that “The Los Angeles County Economic Development Corporation named Santa Clarita the most business-friendly city in the county among cities with populations of more than 50,000 at its 13th annual Eddy Awards on Monday.  Santa Clarita is a state of California Enterprise Zone and does not assess businesses for a utility user tax, which allows them to save up to five percent more on their electric, telephone, water and gas bills.”

The Santa Clarita Enterprise Zone covers 97% of all commercial, business, and industrial zoned land within the City of Santa Clarita. July 2008 marked the 1 year anniversary for the Santa Clarita Enterprise Zone which received its official designation from the State of California back on July 1, 2007.

If your business is located in the City of Santa Clarita or you plan to move your business to Santa Clarita, you should check to see if you are within the Santa Clarita Enterprise Zone boundaries – making your business eligible for significant savings through tax credits and deductions.

Please review the Santa Clarita Enterprise Zone map or list of street ranges to determine if your business is located within the qualified area.

State tax credits, deductions and employment incentives are available for businesses located within any of Sacramento’s state-designated Enterprise Zones or LAMBRA areas. Sacramento Enterprise Zones include the Northgate/Norwood, Oak Park/Florin Perkins and Sacramento Army Depot Zones. Address ranges and maps can be found at SHRA’s Commercial Business Assistance home page. LAMBRA areas include Mather Field and McClellan Park.

Benefits include:

• Sales Tax Credits on qualified property.
• Wage Tax Credits for 5 years for hiring eligible employees. New welfare-to-work incentives may also qualify you for federal wage credits.
• 100% Net Operating Loss Carryovers available up to 15 years.
• Rapid Expensing of Equipment.
• Financing Assistance, Hiring Assistance through Sacramento Works!, and much more.

This past week in CNN’s small business blog, C & I Tax Consultants had a great feature.  See below for an excerpt of the article:

“In 2003, for example, a year California gave away $300 million in tax credits, less than 10% of potentially eligible businesses actually claimed them, says C & I Tax Consultants, an accounting firm that specializes in tax credits.

“There’s absolutely no reason not to look into this,” says Steve Dotan, president and CEO of the Los Angeles company.

And just because you missed the boat on past credits doesn’t mean that the benefit is gone forever. Most states will allow you to go back several years on returns and amend the information, something Dotan says will often uncover plenty of unused credits that are still available.

“I get a lot of, ‘Wow, really?’”

Plus, some credits are refundable, he says, meaning that if you are struggling and not paying taxes, you can actually get cash back.”

The industry is beginning to catch on that there are sizable tax credits available to businesses that can be taken advantage of immediately.  If you want to see what benefits your company is entitled to, contact us for a free consultation.

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.