This morning, CAEZ president Craig Johnson announced that on July 21 & 22, members of the “CAEZ Board of Directors will have the opportunity to meet in Sacramento with members of the Housing and Community Development management team and representatives from the Franchise Tax Board, who will be assuming the position formerly held by our good friend Jeanne Harriman.” Frank Luera recently left his post as head of the HCD and Harriman recently left her post at the FTB. The new government liaisons for the Enterprise Zone program are eagerly anticipated.

California continues to expand state spending and ultimately its tax burden on a regular basis.  Despite only growing its population by 5% over the past several years, state spending has increased by 31%!  Which is why California continues to be one of the highest taxed states in the country. Josephy Henchman, from the TaxFoundation.org blog had this to say about the state’s current tax position:

“California is a high tax state. They are sixth highest in state-local tax burden as a percentage of state income. The sales tax is the highest state rate in the country even before the recent 1% increase, and numerous county rates keep them in the top 5 of state-local combined rates. Their individual income tax top rate is the second highest in the country, eclipsed only recently by Hawaii, and is sixth highest in the country in terms of collections. The corporate income tax is one of the highest in the country and sixth highest per capita in collections. Even the gas tax is the third highest in the country and the state Lottery has the fifth highest implicit tax rate in the country. Only on property taxes is California “low”: 28th highest in collections per capita.”

With this in mind, it is vital that companies that run their businesses in California take advantage of every tax break possible, especially companies that reside in one of the California Enterprise Zones.  If you have a business in one of the state regions, contact us to receive a free consultation.

States from across the country are trying to attract California companies to relocate through a variety of incentive programs, however the Inland Empire area is leveraging the California Enterprise Zone program to retain local businesses.

Bob Dutton, a writer for ‘The Sun’ reported the following two examples of how the EZ program works in the San Bernadino area:

For example, U.S. Rubber Recycling Inc., a manufacturer of recycled rubber flooring products, has been aggressively recruited to relocate to Arizona. They ultimately chose to stay in California because of the incentives and tax credits offered by the Enterprise Zone Program. As a result, 100 good paying jobs remain in California.

A representative from Young Electric Sign Co., a manufacturer of custom electric signs, also shared how they relocated their Southern California operations to San Bernardino solely because of the Enterprise Zone Program. The incentives compelled them to stop looking in other areas because the San Bernardino Valley Enterprise Zone provided the incentives needed to grow their business and staff.

The new Pasadena Enterprise Zone is significantly larger and covers both commercial and industrial zoned land within the City of Pasadena.  In addition, the City of Pasadena offers local benefits to businesses located within the Enterprise Zone boundaries.  Both the state and local benefits apply during the life of the Pasadena Enterprise Zone from April 10, 2007 until April 10, 2022.  If you’re in the Pasadena area, contact us to see what tax credits you can take advantage of.

Find Out if you Are in the Zone

Step One: Are you located in the 1992 Designation, 2007 Designation or both?

Copy of overlay map

1992 Street Ranges ; 1992 Boundary Map

2007 Street Ranges ; 2007 Boundary Map

• If your business is only located in the 1992 Street Ranges, you can utilize the State Tax Credits from April 10, 1992 to April 9, 2007. If your business is only located within the expansion area, you can utilize the State Tax Credits from September 13, 1999 to April 9, 2007.

• If your business is only located in the 2007 Street Ranges, you can utilize the State Tax Credits from April 10, 2007 to April 10, 2022.  If your business is only located within the expansion area, you can utilize the State Tax Credits from March 6, 2008 to April 10, 2022.

• If you are located within both the 1992 and 2007 Street Ranges, you can utilize the State Tax Credits from April 10, 1992 to April 10, 2022.  Please note: you must file two separate Franchise Tax Board (FTB) 3805Z forms for your 2007 tax filing year.

Step Two: Does your business qualify for the local benefits offered through the City of Pasadena?

Copy of local incentive map

Local Incentive Matrix

• If your business is located within the Enterprise Zone Business Development Area (EZBDA), your business qualifies for Building and Planning permit fee waivers. In addition, if you own a business, the City will waive your business license fee. Although fee waivers are permitted for businesses located within the EZBDA, business are still required to obtain required building and planning permits and business licenses from the City of Pasadena. Nonresidential property owners are excluded from receiving the business license fee waiver.

• If your business is located within the Enterprise Zone Technology Development Area (EZTDA) and if the land use is primarily used for scientific research (Research & Development Business) then your business qualifies for the Building and Planning permit fee waivers, as well as the business license fee waiver. To take advantage of this benefit, Research and Development businesses must obtain a letter from the Enterprise Zone Office first before applying for the fee waivers. Nonresidential property owners are excluded from receiving the business license fee waiver.

Business Incentives
Hiring Credit Program
This five year state tax credit, potentially up to $37,000 per qualified employee, for full-time or part-time employees that meet one of the twelve qualifying criteria under the Hiring Credit Program. Potential criteria includes but not limited to: previously laid off due to plant closure or downsizing, military veteran, public assistance recipient, and resident of a targeted employment area. Enterprise Zone business must obtain a Hiring Credit Voucher from the Pasadena Enterprise Zone Office.

• Targeted Employment Area Ranges for 2007 Designation
• 2007 Targeted Employment Area Map
• State Income Limits 2008 to 2000

Sales and Use Tax Credit
Allows Enterprise Zone businesses to claim a state tax credit equal to the sales and use tax paid on the purchase of qualified equipment. Qualified equipment includes assets such as manufacturing, data processing, office, audio/video, and computer equipment.

Business Expense Deduction
Enterprise Zone businesses may deduct up to 40% of the cost of qualified property purchased for exclusive use in an Enterprise Zone during the first year it’s placed in service.

Net Operating Loss
Enterprise Zone businesses may elect to carry forward 100% of their net operating loss for 15 years.

Net Interest Deduction for Lenders
Lenders can earn a deduction from income on the amount of net interest earned on loans made to Enterprise Zone businesses. Businesses looking for an edge in applying for a loan should bring this credit up with your lender.

In case you missed it, this piece was recently published in the San Bernardino Sun and Inland Valley Daily Bulletin.

By Sen. Bob Dutton

It’s no secret that California is facing an economic crisis not seen since the Great Depression. Unemployment in the Inland Empire has now reached 13 percent, and the state is facing a $26 billion deficit.

While the entire nation is suffering during this economic downturn, I believe there is a direct correlation between California having the fourth highest unemployment rate in the Country and this state’s anti-business climate.

I’ve repeatedly referred to study after study, including from Forbes Magazine, Chief Executive Magazine and the American Legislative Exchange Council which show that California continues to rank as the most expensive place to do business. I believe these studies and California having the fourth highest unemployment rate in the nation are directly related and why businesses are fleeing California for nearby states that offer a more business-friendly atmosphere.

Companies of all sizes are being lured to Texas, Arizona, Nevada, Washington and Oregon. Nevada, for example, has rolled out the welcome mat and is aggressively recruiting businesses to not only with an advertising campaign but by keeping costs and regulations to a minimum that make our neighbors to the west a very attractive place for a struggling California businesses to succeed.

California is a major economic power, but we are losing our standing in the nation and world because of the unneeded and unnecessary regulations on businesses that are forcing them to leave. If we are going to ever turn around California’s economy it must come through the creation of private sector jobs.

Recently, I met with representatives from the San Bernardino Valley Enterprise Zone along with some of the zone’s businesses who traveled to Sacramento to talk about the value of the Enterprise Zone Program. This program is one of the only remaining incentive programs that California still possesses. I believe it must be maintained and protected, if not expanded, to continue the support of business growth in this state.

We talked about how this valuable program played a key role in keeping these businesses in the state. Without it, their businesses would be in financial jeopardy and they would be forced to leave creating an even worse business environment.

While many cities in California are struggling to simply meet costs, the city of Santa Clarita is doing well and continues to work innovative projects on the economic front to help small and medium sized businesses.

The Santa Clarita Valley Signal reported, “It’s actually the opposite here. With a keen eye on the near-term difficulties ahead, Pulskamp (city manager) and his team crafted a 21-point plan to improve business conditions in the long term – everything from subsidizing film production and other clean industries that have a positive ripple effect on our economy; to helping businesses take advantage of the tax relief available to them through our enterprise zone status; to a marketing campaign teaching people the ramifications of thinking “Santa Clarita Valley” when deciding where to hire, shop, dine or entertain.”

The more cities that focus on the Enterprise Zone system, the better the overall economy will become.

In the July issue of the FTB’s tax news, the FTB allowed non profits to claim the Enterprise Zone net interest deduction. Here is the FTB’s new position:

“California provides for special tax incentives to encourage investment in specific geographic areas targeted for economic revitalizing called Enterprise Zones within the state. One of these incentives is the net interest deduction. It is available to banks and other lenders. The requirements are simple. If a bank or lender makes a qualified loan to a qualified debtor, it is allowed to deduct the net interest received from such loan against its California taxable income. To be a qualified transaction, the loan must be made to a debtor that is engaged in a “trade or business” in an Enterprise Zone. The term “trade or business” is generally defined for tax purposes as “an activity engaged in for profit.” When a bank or lender makes an otherwise qualified loan to a nonprofit organization, the question arises as to whether a nonprofit is engaged in a trade or business, and thus considered to be a qualified debtor for the purposes of the net interest deduction.

In the past, we disallowed debts made to nonprofit organizations based on the general presumption that nonprofit organizations are not engaged in a trade or business as defined under various tax provisions in the Internal Revenue Code and the California Revenue and Taxation Code.

However, we recently revised this policy based on statutory authority in the California Corporation Code that suggests a nonprofit could be recognized as being engaged in a trade or business. The California Corporation Code which governs nonprofit entities affirms the nonprofit’s right to “carry on a business at a profit,” and use that profit for any lawful activity.” Many nonprofit organizations accept donations, conduct fundraising activities, or charge fees. This revenue is used to sustain the organization, pay salaries, interest, fund capital improvements, expansions, etc. These activities are similar to a trade or business engaged to earn a profit.

Therefore, qualified loans made to nonprofit organizations can qualify for the Enterprise Zone net interest deduction if the debtor meets all the other required qualifications.”

California assemblyman Juan Arambula split with the democratic party [some language from article about his history as being moderate]. Assemblyman Arambula has authored legislation dictating strict reporting requirements for California’s Enterprise Zone. His legislation was widely seen as positive in that it required the Enterprise Zone to keep better record so the tremendous benefits of the Enterprise Zone tax credit program can be more fully understood and documented. This will go a long way to quieting detractors of the enterprise zones when the benefits will be fully reported.

Today, the FTB released the list of cities and district sales tax rates for numerous cities and counties around the state. The FTB also announced that BOE “Specialists” will be canvassing certain zip codes to enforce the business permits to ensure tax compliance.

• New Local Sales Tax Rates Take Effect July 1
• California State Board of Equalization Specialists Verify Business Permits

The Enterprise Zone continues to have a powerful effect on how local businesses in California save money and grow their revenue.

“When you look at the whole picture – the enterprise zone program is an essential tool for economic growth in California,” says Craig Johnson, president of the California Association of Enterprise Zones. “The program delivers measurable benefits to our state by creating jobs and business growth opportunities for economically disadvantaged individuals and communities.”

Mr. Swenson’s research shows that the enterprise zone program decreases unemployment rates, boosts wage, salary and household incomes and decreases poverty rates, the association says.

“What this paper demonstrates is that to evaluate an enterprise zone program’s economic impact, we need to look at a number of outcomes – job growth, unemployment rates, income levels, business retention,” says Mr. Swenson in written comments provided by the association. “In the empirical study which I co-authored, we in fact found that the California Enterprise Zone program reduced unemployment rates, and increased incomes. This latter effect is consistent with increasing wages of EZ residents.”