Rebecca Matt from the HCD announced that several zones now have final TEAs including Kings County, LA East, Yuba Sutter and Siskiyou County. The HCD is close to finalizing Richmond, Delano, San Joaquin, Santa Ana, Merced, Oakland and West Sacramento. This will allow these newly designated Enterprise Zones to qualify employees for the credit.

Yesterday was the CAEZ quarterly meeting where a host of new faces were introduced to the EZ world. First, replacing Frank Luera at HCD will be Tom Bettencourt and John Nunn. Both men seem to be well suited for the role. Replacing Jeanne Harriman will be Jayme Mora and James Dudley. They have years of Enterprise Zone experience under their belt and seemed very inviting and helpful. James was even brave enough to give the group his email address. We look forward to a very supportive and beneficial relationship with both groups.

Toni Symonds, chief consultant for California State Assembly Committee on Jobs, Economic Development, and the Economy briefed the group regarding AB 1139. Looks like there will be a public hearing on August 18, 2009 and the bill will likely reach the Committee on January 5, 2010. The discussion will focus on what is the purpose and goals of the EZ and whether the program achieves these goals.

Also, AB 1554, a little known bill, should be garnering support by the CAEZ. AB 1554 aligns the reporting period with the period that HCD was actually administering the program. There will be much more to come, especially regarding AB 1139.

Last, the CAEZ annual conference is coming up on November 4-6 in Fresno.

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.

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.”

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.”