Assembly Bills

• AB 1779 (Niello, et al.) Mortgage Forgiveness Debt Relief Modification and Extension – Amended 05/03/10
• AB 1899 (Eng/Lieu) State Agencies Post Specified Audits & Contracts To The Reporting Transparency In Government Internet Web Site – Amended 05/28/10
• AB 2017 (Hall, et al.) California YMCA Youth And Government Fund – Amended 05/28/10
• AB 2041 (Villiness/Smyth) Health Savings Account Deduction Conformity – Amended 05/11/10
• AB 2126 (Garrick, et al.) Minimum Franchise Tax/Small Businesses That First Commence Business On Or After January 1, 2011, Exempt First Taxable Year And $100 Succeeding 9 Taxable Years – Amended 05/18/10
• AB 2148 (Tran/Portantino) Deduction For Physician’s Medical Services Performed Free Of Charge To Local Community Clinic Or Emergency Department Of General Acute Care Hospital – Amended 05/18/10
• AB 2403 (Strickland) State Agencies Post Specified Audits & Contracts To The Reporting Transparency In Government Internet Web Site – Introduced 02/19/10 & Amended 04/26/10
• AB 2528 (Knight) Exclusion/Payments Or Vouchers From Federal Consumer Assistance To Recycle & Save Act Of 2009 (aka “Cash For Clunkers”) – Amended 05/05/10
• AB 2559 (Perez, John A.) State Agencies/Prohibits Requiring Social Security Numbers For Benefit, Service, Privilege, Or Participation In Any Program – Introduced 02/19/10
• AB 2589 (Tran) Dual Renewable Energy Device Credit – Amended 04/08/10
• AB 2605 (De La Torre) State Property Sales Or Long-Term Leases – Amended 06/01/10
• AB 2630 (Emmerson/Cook, et al.) Jobs Tax Credit – Amended 05/18/10

Senate Bills

• SB 1008 (Padilla) Limited Partnerships & Foreign Limited Partnerships/Engineers & Land Surveyors – Amended 03/15/10 & 04/28/10
• SB 1391 (Yee) Employer Tax Credit/Reporting Information/New Credits Chaptered After January 1, 2011, Would Be Recaptured If Taxpayer Has Net Decrease In Full-Time Employees – Amended 05/19/10
• SB 1426 (De Saulnier, et al.) State Budget/ Two-Year Spending Plan – Introduced 02/19/10
• SB 1463 (De Saulnier) Corporate Flexibility Act Of 2010/Flexible Purpose Corporation – Introduced 02/19/10 & Amended 04/05/10
• SBX6 19 (Florez) FTB Compile Specified Corporation Tax Expenditure Information & Include On The State Reporting Transparency In Government Internet Web Site – Introduced 05/26/10

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.

Los Angeles, California – Governor Arnold Schwarzenegger today issued the following statement after joining Los Angeles Mayor Antonio Villaraigosa to announce the city’s proposal of a Business Tax Holiday and that Baxter’s BioScience business, a biotechnology company, has decided to continue its investment in California, a decision based largely on the recent expansion of the East Los Angeles Enterprise Zone:

“I applaud Mayor Villaraigosa and the city of Los Angeles on their continuing efforts to bring companies and jobs to the Los Angeles area. For our economy to recover we need the private sector to add jobs, and the proposed Business Tax Holiday and recent expansion of the East Los Angeles Enterprise Zone are two surefire ways to do exactly that. It’s great news that Baxter’s BioScience business has decided to continue its investment and preserve jobs right here in California as a direct result of the East Los Angeles Enterprise Zone expansion, and I look forward to celebrating the passage of the Business Tax Holiday and the new businesses it will bring to California.”

Villaraigosa issued this statement:

Today, I joined Governor Schwarzenegger to visit the site of a company that chose to stay in our great City and preserve 600 jobs for hard-working Angelenos.I want to thank Baxter BioScience for turning to our Office of Economic and Business Policy when they began to have doubts about Los Angeles being the best city for them to call home. I’m glad we made our case, and I think we proved that our jobs and economic development team — helmed by First Deputy Austin Beutner — is willing to go above and beyond the call of duty.

Since last February, my office has been meeting with Baxter to figure out we could do to keep their company and the vital jobs it has created here in Los Angeles.We listened to the employees of Baxter and learned how to develop and implement policies that will attract and retain businesses as well as create good-paying jobs right here in Los Angeles. And then we worked hard to actually make that vision a reality!

In fact, one particularly smart, business-savvy policy – the approval of Los Angeles’ State Enterprise Zone – directly contributed to Baxter’s decision to stay. When the East Side Enterprise Zone was expanded to include Baxter BioScience, the company was able to lower their operating costs with their newfound eligibility for special tax credits.

And this is happening to companies throughout the entire City, as we have aggressively expanded our enterprise zones, Los Angeles has gained the remarkable distinction of having the most acreage with enterprise zone designation – out of every city in California!

The bottom line here is that Baxter is just one example, since it is impossible to know how many other companies have decided to stay in LA and hire more people, because of the tax credits and deductions they gained from being in a Special Economic Zone.

Baxter’s represents the results-driven approach to our newly refocused Office of Economic and Business Policy.
And today, we have an exciting announcement that will give Los Angeles businesses another tool to help them thrive and grow: the Business Tax Holiday will attract new enterprise to Los Angeles by exempting them from any gross receipts tax for three years.

The effectiveness of tax holidays has been proven: my office commissioned a study at USC Business School that suggested the Business Tax Holiday would yield no loss in tax revenue. In fact, it would spur enough job growth to create more tax revenue. This tax holiday will create an estimated 55,000 new jobs with 12% unemployment, that is exactly the kind of jumpstart our economy needs.

I am proud of the fact that our office is leveraging every resource at our disposal to put Angelenos back to work, and I am thrilled that Baxter reached out to us and ultimately chose to stay in LA.

So on that note, I would like to thank Baxter again for believing in our City and for inviting us here today to celebrate a major milestone in their evolution as a company.

In potentially great news for Los Angeles, Mayor Antonio Villaraigosa has proposed a 3 year tax holiday for new businesses that move to or launch in the city of Los Angeles.

After seeing the success of the city’s local enterprise zone, Villaraigosa suggested that the new policy would help increase overall revenues for the city.

So what do the experts think about the policy? “The new policy will lead to the creation of up to 55,000 jobs and generate additional revenue for the city of Los Angeles,” said Charles Swenson, a USC professor who conducted research specifically for the initiative. “In addition, the multiplier effect of additional economic activity in the city nets a positive revenue impact.”

This announcement was posted by the LA Business Journal, you can read the full article by clicking here.

In a recent article, The League of California Cities discussed the possibility of the state removing the Enterprise Zone program, along with the negative effects that it would have.

Cities with enterprise zones will be interested to know that LAO has proposed to eliminate tax benefits granted to businesses in enterprise zones as a cost savings measure. While this proposal has not been adopted in any pending budget proposal, its existence -along with SB 974 (Steinberg), which would shift enterprise zone tax credits to other purposes, is of concern. SB 974 is opposed by the League and many business organizations.

For a copy of the LAO’s analysis of the Governor’s May Revise visit their Web site.

There is constant debate on both sides of the aisle concerning the fate of the California Enterprise Zone. In a state with double digit unemployment numbers, you would think that the state politicians wouldn’t even consider getting rid of the last true vestige of state funded job creation, however some lawmakers still see the lost revenues from the EZ program as more valuable than the jobs they have helped to create. Jay Prag, from Capitol Weekly, had some interesting points on both sides of the argument:

Several recent economic studies have attempted to measure the true impact of California’s Enterprise Zone program. The results are, as they say, mixed. This has led some to call for elimination of the program in order to recapture the “lost tax revenues.” Though these studies provide a thorough hindsight view, it is important to include a forward looking perspective of the business climate that California faces before considering any changes to California’s enterprise zones.

There’s an old cliché about not seeing the forest for the trees. You can extend that perspective a bit like this: If you use a magnifying glass to carefully analyze a single oak tree in the forest for several days at a time, you won’t see it grow. Your conclusion would then be that the tree isn’t growing and by extrapolation, there is no hope for the tree or the forest. Sometimes you need to back up a bit.

Looking forward and not back, California has double-digit unemployment now and likely will for many years to come. States all around the country are competing for employers. The tax advantages of our enterprise zones are one of our very best and most effective tools for bringing employers to the state. As the biggest state in the union, we need the most jobs. Anything that worsens the business climate and job picture in California – and that includes even talking about eliminating the enterprise zones – is, to be blunt, insane.

The city of Oroville was dealt a blow last month when state democrats halted the passing of a bill that would have allowed businesses located in the Oroville Enterprise Zone to sell employee tax credits they don’t use.  This bill could have helped the cash flow position of many of this small town’s local businesses and their stressed cash-flow balance sheets.

The bill, SB 939, started by Senator Sam Aanestad (R-Grass Valley), was placed on ‘Suspense File’ by state democrats last month, stopping the bill in its tracks.

“The Democrats have once again proven that they are the Party of No when it comes to new job and new business creation,” said Senator Aanestad. “With the California unemployment rate at an all time high of nearly 13% — I cannot even begin to understand or fathom why my colleagues across the aisle continue to reject measures that will bring new jobs and new opportunity to California.”

Heads-Up – Changes in Pass-through Entity Return Penalties

Recently signed legislation, SB 401, changed the partnership late filing penalty and added a new late filing penalty for S corporation returns.  / more+

How do I Report a Short Sale?

In prior issues of Tax News we have addressed several issues related to foreclosures. In our February 2010 issue, we addressed how the State of California civil procedures interact with the Internal Revenue Code 108.  / more+

Tax Relief to Baja California Quake Victims

We offer taxpayers affected by the Baja California earthquake in the federally-declared disaster area special tax relief.  / more+

Statutes of Limitations on Assessments

This is the first in a series of four articles on Statutes of Limitations (SOL) that relate to California tax law. This month’s article addresses common SOLs for assessments unrelated to federal action.  / more+

Available Now: Free California Source Income Withholding Webinar in June 2010

We will host a free California source income withholding webinar in June 2010. The topic is Property Management Withholding. / more+

IRS Nationwide Tax Forums Registration Available!

Join tax professionals from across the country for three days of the latest tax law information, hands-on workshops, networking opportunities, and exhibits of the latest tax products and financial services to improve your business.  / more+

Small Business

Does Your Client Know that the Estimated Tax Payment Percentages Changed for 2010?

In 2009, the estimated payment percentages were 30 percent, 30 percent, 20 percent, and 20 percent for respective quarters. For taxable years beginning on or after January 1, 2010, the estimated tax payment percentages have changed for individuals and corporations.  / more+

Ask the Advocate

What You Should Know About FTB Wage Garnishments

An Earnings Withholding Order for Taxes (EWOT) is a continuing wage garnishment on earnings due to a taxpayer from an employer and is subject to the provisions of the Code of Civil Procedure Section 706.010 et seg.   / more+

Inside FTB

Take a look at the changes happening here at FTB.  / more+

Criminal Corner

Our monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time.  / more+

Big Business

Estimated Fee for LLCs Due

For most calendar year LLCs, June 15 is the date that their 2010 estimated LLC fee is due. For fiscal year LLCs, the estimated fee is due on the 15th day of the sixth month of the current taxable year. LLCs use Form 3536, Estimated Fee for LLCs, to make their estimated fee payments.  / more+

Enterprise Zones were legislated throughput the state in 1984.  The program provides tax incentives t businesses, thereby encouraging and bolstering private sector market forces in target areas.  Calexico and the County of Imperial bordering Mexico have California Enterprise Zone status covering 14,298 acres.

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

After a year-long battle, the Century Boulevard corridor in Los Angeles has been approved to be included in the California Enterprise Zone program.  SCPR reported on the development,

State officials have approved the Century Boulevard corridor that leads to and from Los Angeles International Airport as a new part of the “State Enterprise Zone” program. The City of Los Angeles’ bid to add the corridor to the program had stalled in Sacramento for almost a year. But recently appointed Deputy Mayor Austin Beutner stepped in to give it a push.