With record high unemployment, the state of California is taking steps in order to increase the number of jobs provided by small businesses.  One of the most recent developments in the effort was when California announced that it has set aside $400 million to encourage small businesses to hire new full time workers.

Below are the details on the hiring credit:

• A new tax credit of $3,000 for each additional full-time employee hired is available to small businesses with 20 or less employees beginning January 1, 2009.
• The credit is not subject to the 50% limitation for business credits.
  The total amount of credit available to be claimed by all taxpayers is capped at $400 million.
• The credit must be claimed on a timely filed original return received by the Franchise Tax Board on or before a cut-off date specified by the Franchise Tax Board.
• Taxpayers claiming the credit on an original return received by the Franchise Tax Board after the cut-off date is met will be notified that the credit has been denied.
• Taxpayers that have been denied the credit as a result of the $400 million cap being reached will not be assessed an underpayment of estimated tax or underpayment of tax penalty to the extent the underpayment was created or increased by the disallowance of this credit.

Today the Franchise Tax Board (FTB) announced that Enterprise Zone tax credit contingent contracts do not need to be reported to the FTB with Form 8886.   This notice makes the FTB position consistent with federal law relating to Enterprise Zone or other credits services that are provided on a contingency basis.  Click here to read the original FTB post.

As always, feel free to contact us directly for a free consultation, and we can help you and your business take advantage of the California Enterprise Zone tax credits.

The California Enterprise Zone program continues to shine amid the global recession.  No longer is it simply seen as an additional incentive for a city to obtain, several key regions throughout the state are now pushing for an EZ approval in order to dramatically increase attractiveness to companies from around the nation.

One city in particular that has gone on record to pursure an EZ designation is Escondido.  The City Council made the decision to pursue a designation at its meeting Wednesday.

“Escondido has a good shot at it. If we can get it, it will be that much more powerful an incentive,” Councilman Dick Daniels said. “These are times when businesses are not thinking about relocating, but we want to be in position when they do. We have great potential for a business park.”

If the city is successful in becoming a new enterprise zone, they will be able to compete directly with the neighboring San Diego Regional Enterprise Zone.

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.

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.

Great news if you have a business operating in the city of Newman, California.  The city has recently been designated at a new California Enterprise Zone by the State.  This is exciting for Newman and also Stanislaus County, which now boasts an EZ for every city within its borders.

This move by the state will assist in bringing new business to the city of Newman along with attracting local companies to continue operations at a more profitable level.

“An enterprise zone is part of the state’s ongoing effort to increase the number of jobs in California,” said Doug Sweetland, director of economic development for the Alliance.

“In this very difficult economy, it is a great time for businesses to take advantage of the benefits.”

Assemblyman V. Manuel Perez, has introduced AB 1159.  This bill extends the Sales or Use tax credit benefit of the Enterprise Zone (and TTA and LAMBRA) program to include a credit for the purchase of equipment related to renewable energy.  The bill would be in effect from 2009-2016.  Below is the relevant text of the bill:

17053.71.

(a) For each taxable year beginning on or after January
1, 2009, and before January 1, 2016, there shall be allowed as a
credit against the “net tax,” as defined by Section 17039, an amount
equal to the sales and use tax paid or incurred during the taxable
year by the taxpayer for the taxpayer’s purchase of qualified
property.

(b) For purposes of this section, “qualified property” means any
property used in an enterprise zone, targeted tax area, or a local
military base realignment area for the production or generation of
renewable energy.

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