The Tax Foundation‘s 2009 State Business Tax Climate Index has ranked the stat of California number 48 out of 50 states nationally.  At first glance this appears to be extremely negative.  However, the main reason why businesses in California have higher tax rates is mainly due to the fact that they are not taking advantage of the myriad of tax credit options they have available.  Below are some of the credits we can help you receive:

• EMPLOYER HIRING CREDITS
• SALES and USE TAX CREDITS
• BUSINESS EXPENSE DEDUCTION
• NET INTEREST DEDUCTION
• NET OPERATING LOSS CARRYOVER
• DEPARTMENT of WATER and POWER RATE DISCOUNT
• SITE PLAN REVIEW and FEE WAIVER
• SEWER FACILITY CHARGE EXTENDED PAYMENT OPTION
• REDUCED PARKING ORDINANCE
• WORK OPPORTUNITY TAX CREDIT

Here at C & I Tax, along with assisting accountants and companies in taking full advantage of the California EZ Tax Credits, we also feel it is our duty to spread the message of how much potential there really is for businesses that utilize these credits.  This past Friday we posted a feature article on the Santa Clarita Enterprise Zone (coverage), and Carol Rock from KHTS had this to say about EZ Zones,

“What the city discovered was that their guests were unaware of the zone designation or were unable to promote it properly. On the up side, Beiry said they have heard from businesses in the San Fernando Valley that will only locate to other enterprise zones, a plus for their economic development efforts.”

Santa Clarita Mayor Bob Kellar had this to say about Enterprise Zones, “We have a business friendly City Council and government that does not require a business license fee, does not assess a utility user tax, and offers an Enterprise Zone for even more tax savings incentives to businesses. Santa Clarita is one of the few places in LA County where there is available space and let me clarify that with ‘attractive’ available space, not just some large plot of land out in the middle of the desert but real opportunities for infill projects, or with freeway frontage, and more.”

If you want to know more information about California Enterprise Zones, click here to contact us and let us assist you in taking full advantage of the tax credits available to you.

The Lynwood Enterprise Zone covers nearly all of the commercial and industrial zoned properties in the cities of South Gate and Lynwood. Hiring residents residing in targeted areas surrounding the zone may qualify your firm for additional special tax credits.  To take advantage of all of the available tax credits for this or any other California Enterprise Zone, contact us.

WHAT IS THE BACKGROUND OF THE CITY’S ENTERPRISE ZONE?
In September 2006, the cities of South Gate and Lynwood, applied to the State of California for an Enterprise Zone designation. This is a competitive process and on November 3, 2006, the cities of South Gate and Lynwood were awarded conditional designation. The City of South Gate was also authorized to receive and process applications from eligible businesses located within the Enterprise Zone area.

WHO IS ELIGIBLE?
Any individual or company operating a trade or business within the Enterprise Zone is eligible to participate in the program.

WHAT ARE THE BENEFITS?
The Enterprise Zone program may provide substantial tax savings for your business. There are five incentives available to taxpayers that invest in or operate a trade or business located within the Enterprise Zone.

The incentives are:

1) Hiring Tax Credit

2) Sales and Use Tax Credit

3) Business Expense Deduction

4) Net Operating Loss Carryover

5) Net Interest Deduction for Lenders and Bankers

WHAT ARE STATE HIRING CREDITS?

• A business within the Enterprise Zone boundary may reduce its State income tax by a percentage of the amount of wages paid to one or more qualified employee(s).
• A business/firm can claim up to 50% of an employee’s wages in the first year of employment. The credit percentage decreases by 10% annually, phasing out after five years.
• Approximately $31, 570 or more in State tax credits is potentially available per qualifying employee hired over a five-year period.

WHICH EMPLOYEES QUALIFY ME FOR THE HIRING TAX CREDITS?
A qualified employee is an employee who immediately before starting work for the business is any of the following:
1) An employee who qualified for the former Program Area hiring credit;
2) A person receiving or is eligible to receive subsidized employment, training, or services funded by the federal Job Training Partnership Act (JTPA), or it is successor;
3) A person eligible to be voluntary or mandatory registrant under the Greater Avenues for Independence Act of 1985 (GAIN), or its successor;
4) An economically disadvantaged individual 14 years of age or older;
5) A qualified dislocated worker;
6) A disabled individual eligible for, enrolled in, or who has completed a state rehabilitation plan;
7) A service-connected disabled veteran;
8) A veteran of the Vietnam era;
9) A veteran who recently separated from military service;
10) An ex-offender convicted of a felony or misdemeanor punishable by incarceration or probation;
11) A person eligible for, or a recipient of:

• Federal Supplemental Security Income (SSI) benefits;
• Aid to Families with Dependent Children (AFDC);
• Food Stamps; or
• State and local general assistance (GA)

12) A Native American Indian, or other Native American descent
13) A resident of a Targeted Employment Area (TEA); or
14) For employees hired during taxable years beginning on or after 1/1/1998, a member of a targeted group as defined in the federal Work Opportunity Tax Credit (as in effect January 1, 2001, in Internal Revenue Code Section 51).

In addition, at least 90 percent of the employee’s work must be directly related to a trade or business activity located in the Enterprise Zone and at least 50 percent of the employee’s work must be performed inside the boundaries of the Enterprise Zone.

WHAT ARE SALES AND USE TAX CREDITS?

• California income or franchise tax may be reduced by the amount of sales and use tax paid on process-related machinery parts purchased for exclusive use in the Enterprise Zone.

Qualifying property is machinery or machinery parts used to:

• Manufacture, process, fabricate, or assemble a product;
• Produce renewable energy resources;
• Control air or water pollution;
• Data processing and communications equipment including, but not limited to, computers, computer-automated drafting systems, copy machines, telephone systems, and fax machines; and
• Motion picture manufacturing equipment central to production and postproduction, including but not limited to, cameras, audio recorders, and digital image and sound processing equipment.
• Individuals, partnerships, and limited liability companies may claim a credit equal to the sales and use tax paid or incurred on the first $1 million of qualified machinery purchased. For corporations, the limit goes up to $20 million. The tax credit may be carried over.

As I was researching some key enterprise zones, I discovered an interesting post on bizquest.com,  Bizquest is an online marketplace where companies can place themselves up for sale.  When you are selling your company, what is the first item you talk about?  Your most valuable assets, correct?  So I knew you would enjoy this, I’ve placed the post below:

Highly Profitable Charter Bus Service in the Enterprise zone.

This charter bus service company is located in the enterprise zone of Riverside County near Palm Desert.

Established 9 years ago, this company continues to grow its revenues over 15% year after year. 2008 revenues are expected to grow at the same rate. Because of its location in the Enterprise zone, this business enjoys several tax benefits, such as, no sales tax on all equipment, including buses, and an employer hiring credit of $10,000 to $12,000 per year per employee for 5 years.

Net Interest Deduction for Lenders: Zone business interest payments to lenders on commercial loans is not taxable income, but rather a tax deduction to the lender which gives Zone firms substantially greater bargaining power in obtaining both lower loan interest rates and more beneficial loan financing terms than non-zone businesses.

This business provides bus service to various schools in the area. The business comes with two 45 feet buses and one 40 foot bus, appraised at $430,000. Very well maintained. The business is for sale for $640,000. Asking price for the Real Estate that includes approx. 3 acres of land with a 1,500 sq feet home on it and plenty of room to park the buses is $480,000. The current owner lives in that house and uses a portion of the house as his office.

I loved it!  This is obviously a company that has realized the the power of enterprise zones and how valuable they can be corporately.  When analyzing a company to buy, or where to start a corporation, make sure to have a strategic mindset and operate in one of the California Enterprise Zones.  A full list of these zones can be found here: EZ Zones.  If you want to know more about the EZ Zones, you can call us directly at (314) 550-1666 and we can help navigate you through how we can help you take full advantage of your available tax credits.

I was recently quoted in the September issue of the EnVision Newsletter, written by BoNiha Lee, The article made some excellent points and I wanted to share them with you.  Portions of the article and my quotes are below:

“The primary benefit associated with enterprise zones are tax credits for hiring eligible employees, said Steven Dotan, president and CEO of C&I Tax Consultants of Los Angeles. Dotan and his company work as consultants for both businesses and accountants throughout California.

“It’s a dollar-for-dollar tax credit for every qualified employee they hire,” Dotan said. “Not all employees qualify, but enough of them will. You’re talking about a fair enough money for any company.”

The credit is based on a percentage of the employee’s wages over the first five years of their employment. In the first year of employment, 50 percent of an employee’s wages can be claimed. The amount decreases by 10 percent every year after that for five years.

Another great incentive is the sales or use tax that helps businesses get the sales tax back on purchases of machinery. The credit can be used on items such as computers and telephones.

“It’s a good tool, because it can knock off your taxes,” Dotan said. “You’re still gathering credits and offsetting your income and offsetting costs.”

Many businesses do not take advantage of the credits because they either don’t understand how it works, do not have an accountant who knows enough about it to help, or think there is too much work associated with it to see a benefit, according to Dotan and economic development offices.”

California Governor Arnold Schwarzenegger announced that the City of Compton would receive a State Enterprise Zone Program on November 3rd 2006. The state awarded the Enterprise Zone designations on a competitive basis. Compton’s application ranked 8th of the 25 applications approved for a California Enterprise Zone.  Compton said that the enterprise zone would enable the following:

1. Business and industrial expansion and growth,
2. New businesses and industry cluster attraction,
3. Jobs and job opportunities for Compton residents ,and an
4. Infusion of new private sector equity capital and financing for Compton businesses.

Below are some of the incentives offered for companies operating in the Compton Enterprise Zone:

Reductions of Fees for Enterprise Zone Businesses:
1. Reduced Expedited Plan Check Fees
2. Reduced Building Plan Check and Permit Fees
3. Reduced Planning Entitlement Permit Fee
4. Reduced Business License Application Fee

Reductions of Administrative Processing Time for Permits and other Applications:
1. Priority Plan Checks
2. Priority Building Inspections

Incentives Related to Neighborhood Transformation Activities:
1. Job Assessments, Outreach, Recruitment, and Training
2. Coordination of Local Schools, Colleges, and Other Training Providers with Enterprise Zone Employers
3. Identification and Intake of Individuals in Targeted Groups Facing Barriers to Employment
4. Integration of Job Development Services with other Local Human Services

Other Incentives for Enterprise Zone Businesses:
1. Infrastructure and Site Assembly Incentives Site Assembly
2. Site Preparation/Clearance Assistance
3. Infrastructure Design and Construction
4. Seismic Rehabilitation
5. Reduced Development Impact Fees
6. Brownfield Remediation

I’m excited to launch this blog, which I hope will become your information source for news and opinions focused on the California Enterprise Zones and tax professionals.  And we’ve launched this blog early this morning, the week directly after National Payroll Week.

National Payroll Week celebrates the hard work by America’s 156 million wage earners and the payroll professionals who pay them. Together, through the payroll withholding system, they contribute, collect, report and deposit approximately $1.7 trillion, or 64.2%, of the annual revenue of the U.S. Treasury.

And it is with the accounting industry in mind I would like to discuss the what we do as a company, C & I Tax helps companies and tax professionals in each of the California Enterprise zones take full advantage of all the available credits for businesses operating in these locations.

Are you a tax professional who has clients in one of these enterprise zones?  See below for a full list of the enterprise zones:

Los Angeles Region

• Antelope Valley (Palmdale, Lancaster)
• Compton
• Gardena
• Hollywood
• Huntington Park
• Long Beach
• Los Angeles – Central Downtown*
• Los Angeles – East Side*
• Los Angeles – Harbor Area
• Los Angeles – Mid Alameda Corridor
• Los Angeles – Northeast Valley
• Lynwood
• Pasadena / Altadena
• Santa Clarita
• Southgate
• Wilmington

Central Valley

• Arvin
• Bakersfield/Kern (SE Bakersfield)
• Barstow
• Delano
• Fresno City*
• Fresno County
• Kings County
• Lindsay
• Madera
• Merced / Atwater
• Porterville
• Shafter
• Stanislaus County (Ceres, Modesto, Turlock)
• Watsonville

Orange County Area

• Santa Ana*

San Diego Area

• San Diego (Includes cities of Chula Vista and National City)*

Inland Empire/Imperial Valley

• Calexico
• Coachella & Indio
• Colton
• Imperial Valley (Brawley, Unincorporated Imperial County)
• Riverside
• San Bernardino

Northern California

• Eureka
• Oroville
• Shasta Metro (includes cities of Redding and Anderson)
• Shasta Valley

Sacramento Area

• Sacramento (Includes North Sacramento, Florin / Perkins and Northgate)
• Stockton
• Yuba Sutter

Bay Area

• Oakland*
• Pittsburg
• Richmond
• San Francisco*
• San Jose

* indicates that Federal credits are also available.

Created by lawyers and CPAs, C & I are the Enterprise Zone tax credit experts. We do all the work for you to capture the Enterprise Zone credits. FIND OUT HOW MUCH YOU CAN SAVE!

With the economy in a down cycle, you can’t afford to pay more in taxes than you should. Let us help you reduce your tax burden and increase your cash flow.

Each of the posts from here will discuss tax news as it happens along with featuring each of the California enterprise zones in detail.