California recently proposed a new tax credit similar to the federal credit called the Work Opportunity Tax Credit (“WOTC”).  The proposed California credit would work together with the Enterprise Zone tax credit (“EZ”) but without the boundary requirement.  The tax would be worth up to $2,400 of wages paid to qualified employees.  Click here to read the full text of the proposed tax credit.

To take advantage of this tax credit, click here for a free consultation with the C & I team.

WOTC is a Federal credit that provides you with a dollar for dollar tax credit of:

• $2,400 for each new adult hire;
• $1,200 for each new summer youth hire,
• $4,800 for each new disabled veteran hire, and
• $9,000 for each new long-term family assistance recipient hired over a two-year period.

Employees can qualify based on any one of nine target groups.  There are strict requirements for submitting paperwork to qualify employees for the credit.

Areas of Modesto have been designated as an Enterprise Zone (EZ) by the Governor of California through The Housing & Community Development Department.  Being in the EZ provides businesses with tax incentives offered by the State to aid economic growth and enhance the community.

Who Qualifies?

• Existing and expanding businesses within the zone
• New businesses locating within the zone

What are the incentives?

Hiring Tax Credits
EZ businesses can earn up to $31,574 in State tax credits for each qualified or voucher employee hired over a five-year period.  Refer to The Alliance for information about eligibility criteria to determine whether an employee qualifies for this credit.

Sales & Use Tax Credits
EZ businesses may receive the sales or use tax credit for the purchase of manufacturing or processing machinery, data processing and other equipment used in the EZ.  Individuals, partnerships, subchapter S corporations, and limited liability companies can claim a credit on the first $1,000,000 of qualifying purchases per year, while corporations can claim credit on the first $20,000,000 of purchases per year.

Business Expense Deduction
Up front expensing of certain depreciable property can be claimed.

Preference Points
EZ businesses can earn preference points on state contracts.

Operating Loss Carryover
Up to 100% of the Net Operating Loss may be carried forward for up to 15 years.

Net Interest Deduction
Lenders to EZ businesses may receive a net interest deduction.

Unused Tax Creditss
Unused tax credits can be applied to reduce future tax liability.

In addition to the incentives offered from the State of California, Modesto offers the following incentives:

Local Incentive Zone
Expanding businesses zoned for manufacturing or business park uses may be eligible for rebates.  For more information refer to

CFF Deferral
Businesses constructing new facilities may be eligible for a deferral of the CFF fee and contract for a payment schedule over a 10 year period.  For more information refer to CFF Deferrals.

Vince Vasquez, the senior policy analyst at the San Diego Institute for Policy Research, recently published a commentary highlighting the success of the San Diego Regional Enterprise Zone. The following was originally printed in La Prensa San Diego on 1/9/2009:

When the City of Chula Vista began reviewing its budget-balancing options last fall, government officials considered cutting the city coordinator for the “enterprise zone” (EZ) program. A new economic analysis released this week finds cutting this position would be a mistake, as Chula Vista’s participation in the San Diego Regional Enterprise Zone has created hundreds of jobs and developed millions of dollars for potential community benefit.

Enterprise Zones are special packages of tax breaks and other incentives designed to increase jobs and investment opportunities within a limited, economically-distressed area. Invented in Great Britain in the 1970’s, and popularized in the United States under the leadership of President Ronald Reagan, EZs have become a major component of urban renewal strategies across the nation. More than 40 states have established EZ programs tailored to their own unique needs and goals, including the Golden State.

California’s Enterprise Zone program offers four key benefits that increase job opportunities and a attract private investment: 1) credits for sales tax paid on certain machinery equipment; 2) a maximum five-year tax credit for hiring qualified employees; 3) lender interest deductions; and 4) an extended carryover of corporate net operating losses. In addition to state benefits, municipal EZ administrators expedite local permits and provide technical assistance for EZ participants. Combined, these incentives have helped retain businesses in some of the state’s most economically distressed areas through two recessions, spurring greater capital expenditures, and expanding workforce opportunities for at-need, disadvantaged and economically challenged Californians. Since 1986, California’s EZ program has been a net gain for San Diego’s economic climate – assisting in the creation and retention of more than 25,000 area jobs, and spurring nearly $1 billion in private investment.

Chula Vista’s participation in the state EZ program has only been a recent development. The “South Bay Zone” was ultimately established in 1992 to include 6,563 acres in Otay Mesa and San Ysidro, and later expanded in 2000 to include 447 acres in Chula Vista’s bay front area. Many large employers were located in the South Bay Enterprise Zone including Delimex, Sony, Honeywell, Howard Light Industries, Panasonic, Martin Furniture, Raytheon, and Sanyo. From 1990-2000, unemployment dropped in the South Bay EZ, which also saw a significant decrease in the poverty rate (22% to 16%) compared to the City of San Diego, which over the same period experienced an increase (from 13% to 15%).

Moreover, EZ program encourages businesses to hire and retain more low skilled employees, which is vital in today’s economic downturn. These jobs may often be the first opportunities for employment these individuals have after reentering society, such as the case may be with an ex-offender or military veteran, and thus it provides a critical first opportunity to learn new skills that will enable them to reach for higher-paying skilled positions.

In 2006, local lawmakers in the City of San Diego, National City and Chula Vista successfully developed a strategic partnership and applied for the approval of a larger, reorganized “Regional Enterprise Zone” (REZ) that stretches across 36,000 acres in more of the communities that need additional investments and job opportunities. The REZ has since been conditionally approved by the state, and businesses within the REZ began qualifying for benefits in late 2007. Today, approximately 6,400 acres of Chula Vista is covered under the REZ, which is more than a fourteen-fold increase from the covered city land under the South Bay EZ. With hundreds of more local businesses now able to tap into the lucrative program benefits, the Regional Enterprise Zone has been a stunning success for economic development efforts on Chula Vista’s west side.

According to government data from the San Diego EZ administrator’s office, Chula Vista’s first full year participating in the Regional EZ has been a positive economic experience. Approved hiring credit vouchers have more than quadrupled (446%) from 2007’s tally, rising from 96 to an estimated 428. More than 650 hiring credit vouchers have been issued throughout Chula Vista’s participation in the California enterprise zone program, a sum worth more than $3.2 million. EZ benefits in 2008 were concentrated to those most at need – small businesses and local residents. 62% of companies receiving hiring credit vouchers employ 50 or fewer workers, and citywide, 90% of vouchers were received by residents of Chula Vista’s west side. The jobs that have been created or retained with the use of hiring vouchers are good paying positions, and field from a diverse number of industries, including retail, heavy industry, and construction. Wages range from the state minimum to as high as $36 dollars an hour, and the average rate fell at $9.80 an hour, 122% above the hourly minimum wage.

Analyzing the industries which receive vouchers, employment numbers, and average earnings, the San Diego Institute for Policy Research estimates that in 2008, Chula Vista’s participation in the San Diego Regional Enterprise Zone produced a total economic impact of $11.57 million.

The San Diego REZ is still only conditionally approved by the state of California, and is at risk of elimination if Chula Vista decides to forfeit its contractual obligations and cuts funding for the EZ program. The original tri-city partnership calls for Chula Vista to commit to marketing the EZ program, and it has a designated “Principal Economic Specialist” employee at City Hall to manage marketing and promotion responsibilities. However, last December this position was up on the government chopping block for elimination, which would have potentially caused Chula Vista to forfeit its participation in the REZ, and jeopardized the entire program.

Chula Vista’s participation in the EZ program is a critical investment in protecting its local economic future and its unique community character. With a broader regional EZ approach, Chula Vista has gained tremendously, creating jobs and protecting small businesses. But these gains are fragile, and can be quickly lost with the elimination of the city’s economic development specialist position and the loss of the EZ marketing budget. With a long term multi-million dollar gap projected in the city government’s budget, the City Council would be wise to find sustainable solutions to meet its fundamental enterprise zone commitments.

Porterville has the distinction of being one of California’s first Enterprise Zones.  Established in 1986, the Enterprise Zone allows for special state and local incentives to encourage business investment and promote the creation of new jobs.  The Enterprise Zone boundaries are roughly described as Highway 65 east to Plano Street, from Olive Avenue south to Gibbons Avenue. Companies located in the Enterprise Zone are eligible to receive the following tax credits and benefits:

• Hiring Credits
• Sales or Use Tax Credit
• Business Expense Deduction
• Net Operating Loss Carryover (NOL)
• Net Interest Deduction for Lenders
• Preference Points on State Contracts
• Preference Points on Industrial Development Bonds
• Expeditious processing of plans and permits
• 10 year, 0% payment plan for permits and development fees

California legislators have proposed legislation that would allow taxpayers to claim Enterprise Zone tax credits to offset any income, rather than just income derived from the same zone.  We’ll keep our eyes on this.  Here is the text of AB 341:

The Enterprise Zone Act provides for the designation by the Department of Housing and Community Development of enterprise zones, pursuant to which certain entities may receive regulatory, tax, and other incentives for private investment and employment.

The Personal Income Tax Law and the Corporation Tax Law allow a taxpayer to claim certain tax incentives, including credits, for
activities conducted in an enterprise zone.

This bill would state the intent of the Legislature to enact legislation to revise the enterprise zone credit system to allow a taxpayer authorized to claim those credits to apply the aggregate value of all enterprise zone-related income tax credits toward the taxpayer’s tax liability.

This blog is dedicated to discussing the California Enterprise Zone program in detail, so we’re obviously bias on the benefits that these zones gives to businesses.  However this past week a new study by several leading USC professors reveal that the California Enterprise Zones are truly a bright spot for the State and can aid in re-building local economies.  This study took into account decades of economic data in the state and proves the program not only works, but also will continue to help the state and its citizens.

“If you’re going to eradicate a program, you need to evaluate it on the number of outcomes and we found these programs had a positive impact,” said Swenson, a professor at the USC Marshall School of Business and Leventhal research fellow, who is an expert on state taxation. “It’s the only program we have that gives tax breaks and in a time of economic downturn. The last thing you’d want to do is cut a program that increases jobs and decreases poverty.”

They’ve discovered statistical data illustrating that enterprise zone programs aid local economic sectors by creating jobs and increasing incomes, as well as reducing poverty and unemployment rates.

“For California, we found that enterprise zones increased employment by 2.2 percent and increased the fraction of houses with wage and salary income by 2.1 percent,” said Swenson, adding that the programs have had a positive effect for all categories in all states that have them.

Continuing on my post from this past Wednesday, I wanted to spotlight several businesses in California that have successfully taken advantage of the California Enterprise Zone tax credits.  Today I want to showcase Chaparral Motorsports, a company that has over 200 employees and has been in business since 1980.  They have continued to have success utilizing the tax credits afforded them from the San Bernardino Valley Enterprise Zone.

Here is what the owner had to say about the California EZ process, “The first year we filed for employee tax credits and these made a considerable difference in our bottom line. This year, we will also file for tax credits for equipment we’ve purchased. The savings may be double of last year.  Taxes and fees continue to increase year after year in California, making it harder and harder to operate a business in this state. Any amount we can save makes a huge difference.

In an economy like the one we are dealing with now, these incentives are more important than ever to help protect jobs. Certain aspects of the Enterprise Zone program have allowed us to train and employ more workers. Without the San Bernardino Valley Enterprise Zone, there would be fewer people employed.

We are not the only business with this sentiment. California’s Enterprise Zone program is vital to the continued success of hundreds of businesses throughout the state.”

It seems you cannot open a newspaper or financial magazine without being informed of the ever-increasing unemployment rate in the US, and the State of California unfortunately continues to be a leader in this statistic.  With both the state and Federal Government focusing 100% of their attention on how to curb this negative trend, it seems apparent that now is the time when small to medium sized businesses should be embracing the California Enterprise Zones.

A stimulus package will have only a limited effect on your bottom line, and your company most likely will never have access to a bailout fund, however the California EZ system allows you to take advantage of numerous tax credits that could save thousands or even tens of thousands of dollars per year.  But don’t take my word for it.  Listen to an actual small business owner here in California who has successfully utilized the many benefits of the EZ program with great results.

Daniel Morrow owns a small business in the high-tech sector of the market and had this to say about the importance of the California Enterprise Zones, especially in how they relate to employment.

“I can unequivocally say that certain aspects of the enterprise zone program that we have been able to take advantage of at Opt-Test has allowed us to train and employ more workers.  Let me make this perfectly clear for those academics in the audience – without the Shasta Metro Enterprise Zones there would be more people unemployed or working at much reduced wages here in Shasta County.  We are just one company, but I have spoken with numerous other business owners in the enterprise zone here who share my experience and my sentiment.  The enterprise zone program in California is vital to the continued success of hundreds of businesses throughout the state.”

Atwater is a progressive community when it comes to assisting and cultivating business. The City’s growing residential development is spurring commercial investment, construction, and services. Additionally the City has an established history of food processing, farming, and light manufacturing companies.

The City of Atwater has several programs to assist local businesses in being more prosperous, including:

• State of California Enterprise Zone Designation
• Foreign Trade Zone Designation
• Local Revolving Loan Fund
• Entrepreneur Training Program
• Access to business counseling and customer service training programs
• Recycling Market Development Zone Designation

If you have a business in the city of Atwater, contact us directly for a free Enterprise Zone consultation.

Located in California’s Central Valley, (Madera Population year 2000: 43,207. Estimated population in July 2006: 54,959) offers affordable small-town living on the periphery of a large metropolitan area (Fresno is 18 miles south). It’s a place where families can afford spacious houses and their kids can join 4-H or play sports a few blocks from home.

Madera is the home of Valley Children’s Hospital, one of the largest children’s hospitals in the U.S. Educational needs are served by the Madera Unified School District, featuring 20 schools; among them is a California Distinguished Elementary School. College courses and training are available through State Center Community College and CSU, Fresno.

If you have a business that operates in Madera, click here to contact us for a free consultation.