Local businesses in San Francisco may soon find themselves being able to take advantage of new state tax credits. Many people don’t realize that the San Francisco region is already an Enterprise Zone, however the city is considering applying for an expansion for 2010. One of the main areas that would benefit the most from an Enterprise Zone designation is the old Hunters Point Naval Shipyard, which has re-development plans for new stores, restaurants, etc. to bring life back into the area.

These plans are following up on the 2007 EZ expansion that increased the size of the zone to nearly 6,000 acres throughout the city.

Porterville has the distinction of being one of California’s first Enterprise Zones. 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

BUSINESS INCENTIVE ZONE

California’s only targeted tax area, Porterville is part of Tulare County’s Business Incentive Zone (“The BIZ”).  BIZ boundaries encompass the entire City of Porterville and offers many of the same benefits available through the Enterprise Zone program.  Businesses qualify for BIZ advantages based on the Standard
Industrial Codes (SIC).  Qualifying SIC codes are as follows:

2000 – 2099 Food Processing
2200 – 3999 Certain Other Manufacturing
4200 – 4299 Motor Freight Transportation & Warehousing
4500 – 4599 Transportation by Air
4700 – 5199 Transportation Service & Wholesale Trade

The State of California create the Enterprise Zone initiative in order to assist cities attract businesses, and one of the cities that have championed this opportunity was the City of Palmdale who received designation from the State for the Antelope Valley Enterprise Zone in February 1997.  They encourage businesses both small and large to take advantage of a number of tax incentives through the Antelope Valley Enterprise Zone. Any company located within the boundaries of the 61-square-mile Enterprise Zone may reduce its state business income tax through five tax incentives.

This particular area is experiencing tremendous growth due to its proximity to Los Angeles combined with the low cost of living.  And with the following five tax incentives, this particular enterprise zone is sure to see continued economic growth for years to come:

Hiring Tax Credit:
Firms may earn up to $31,574 in state tax credits for each qualified employee hired over a five-year period.

Sales & Use Tax Credit:
Corporations may earn sales tax credits on purchases of up to $20 million per year on qualified machinery or machinery parts used in the Zone. Partnerships and individuals may annually claim a credit on the first $1 million of qualifying purchases.

Business Expense Deduction:
You may deduct up to $20,000 of the cost of qualifying business equipment, furniture and fixtures or other depreciable personal property.

Net Operating Loss Carryover:
Up to 100 percent of Net Operating Loss may be carried forward for 15 years.

Interest Deduction for Lenders:
Lenders to Zone businesses may deduct direct expenses incurred in making the loan from the interest income. This may mean more favorable rates or terms for the borrower.

So if you have a business or you’re a tax professional who has clients that run their companies in the Antelope Valley Enterprise Zone, contact us and let us help you take advantage of the tax credits available.

The thriving metropolis of Los Angeles has three State Enterprise Zones as well as a Federal Empowerment Zone and a Renewal Community designation. Within these areas, businesses can take advantage of State and/or Federal tax credits and deductions not available to businesses elsewhere. The goal of the incentives is to stimulate business attraction, growth, and increased employment opportunities within economically challenged areas of the City.

Enterprise Zones assist businesses located in the zones to lower their operating costs by providing them with tax credits and deductions. The state offers incentives such as: hiring credits, sales & use tax credits, expense and interest deductions. The City of Los Angeles offers local incentives such as, DWP rate discount, site fee waivers, sewer facility hookup payment plans, Work Opportunity Tax Credit, and reduced parking rates.

The Los Angeles Enterprise Zone was conditionally designated by the State on October 15, 2006. When the designation becomes permanent it will be valid for 15 years. In addition, the Eastside State Enterprise Zone designation is valid through January 10, 2008, and the Harbor Zone through March 3, 2009

EMPLOYER HIRING CREDITS
Up to $37,440 over a 5-year period per each qualified employee can be claimed by an Enterprise Zone business as a tax credit. An employee can qualify under any one of 13 different categories.

SALES and USE TAX CREDITS
An Enterprise Zone business can receive a tax credit of 100% of the sales/use tax paid for equipment purchases for use in the zone. Machinery, machinery parts, telecommunications equipment and office equipment such as copiers, printers, fax machines and telephone systems also qualify.

BUSINESS EXPENSE DEDUCTION
An accelerated depreciation is available for tangible personal property the first year it is placed in service in an Enterprise Zone. Office supplies and inventory do not qualify. Limits: $20,000.

NET INTEREST DEDUCTION
Lenders can earn tax-free interest on loans made to Enterprise Zone businesses.

NET OPERATING LOSS CARRYOVER
100% of Net Operating Losses may be carried forward for 15 years to reduce the amount of taxable income for those years.

DEPARTMENT of WATER and POWER RATE DISCOUNT
The Department of Water and Power offers a five-year electric rate discount to new businesses that are moving into the zone and apply within 18 months for the discount. Existing businesses whose energy consumption in the 6-month period before the date of application was at least 35% greater than the monthly average in the prior 12 months also qualify.

SITE PLAN REVIEW and FEE WAIVER
The City provides a fee waiver for review of commercial or industrial architectural plans for projects of 40,000 square feet or greater located in an Enterprise Zone during an initial application for a site plan review.

SEWER FACILITY CHARGE EXTENDED PAYMENT OPTION
The City allows Enterprise Zone businesses qualify for a one-time lump sum payment exemption if the Sewer Facility Charge is over $17,000. The fee can be paid in installments over five years but interest is payable on any unpaid balance.

REDUCED PARKING ORDINANCE
This ordinance provides reduced parking requirements for Enterprise Zone businesses compared with other areas of the City.

WORK OPPORTUNITY TAX CREDIT (WOTC)
The Work Opportunity Tax Credit (WOTC) has been IMPROVED! The WOTC program is now good through 2011. Now any business anywhere can qualify for the credits as long as they hire persons between the ages of 18-39 who reside in either the Federal Empowerment Zone (EZ) or the Federal Renewal Community (RC) area. Los Angeles contains both an EZ and an RC. There are eight (8) additional eligibility categories, some of which are not dependent on the employee’s address. The WOTC hiring credit is worth up to $2,400 per year for each eligible hire.

San Diego has a rich history of business success and innovation, and it is also home to companies that are constantly visible on the national level.

Aside from the normal benefits that operating a business in one of the State’s California Enterprise have, such as:

• Tax credits may be claimed on up to half the wages paid to qualified new employees.
• Tax credits may be claimed for sales taxes paid on equipment purchased for manufacturing or production purposes.
• All net operating losses may be carried forward as a deduction in future years.
• Business equipment depreciation can be accelerated, up to a limited amount.
• Low-income employees can claim their own personal income tax credits.
• The state will give priority for Industrial Development Bond applications.
• Lenders (both commercial and private) may deduct net interest income on loans to Enterprise Zone businesses.

Running a business in San Diego also has additional benefits, such as:

• The Enterprise Zone Job Referral Service will assist with recruitment and pre-screening for new employees at no cost and will provide the necessary verification for you to claim tax credits on their wages.
• City staff can expedite permit applications and serve as liaison with other City departments.
  Certain development fees may be reduced or waived.
• New development projects located in the City’s Enterprise Zones are eligible for direct assistance by the City. Assistance includes help in determining project application requirements, fast track permit processing, liaison help in the development process.
• The City can provide an exemption from urban impact fees and housing trust fund fees.

Today I attended the second of three hearings related to AB1139. The hearing focused on the Enterprise Zones and innovation. Assemblyman Manuel Perez, as head of the JEDE, presided over the hearing. Assemblyman John Perez, AB1139’s author was also present for the first part of the hearing and stated that his two main concerns were getting rid of the TEA criteria and getting rid of retroactive vouchering. His stated reason for wanting to delete the TEA criteria was not persuasive. He did not cite to any concrete numbers or even rough statistics, but in a general baby-out-with-the-bathwater stroke suggested that “some” employees who live in expensive lofts are qualifying for the credit because some nicer areas of Oakland, Long Beach and San Francisco are within the TEA. On that basis, he concluded that the TEA category must go.

There was some very persuasive commentary by proponents of the EZ, and particularly some truly amazing real life stories from businesses who said that but for the EZ, they would not be in business today. Interestingly, those employers are hiring the types of employees and providing the types of benefits that the EZ program was designed to accomplish. More on today’s hearing next week.

The next AB 1139 hearing is October 19 in San Diego.

The city of Hesparia is one of the newest additions to the California Enterprise Zone program.  If you operate a business in Hesperia, contact us for a free consultation to see what tax credits are now available to you.

Click here for a map of the new enterprise zone boundaries.

Click here for the official announcement.

Despite a strong effort, the State of California has not given the city of Oxnard its desired Enterprise Zone. This has caused a significant stir in the region, since, from all appearances, Oxnard seemed to be an excellent candidate.  Instead of Oxnard, the state chose to award its new designations to:

• Hesperia
• Taft
• Tulare
• Pittsburg
• Sacramento

The Pacific Coast Business Times showed considerable consternation at the state’s decision:

“Oxnard is the biggest city in the biggest county in the tri-county region. It has a pro-business attitude, plenty of land and utility resources, a large and eager workforce and a desire to lead the state’s economic recovery. But that apparently means nothing in Sacramento, where the California Enterprise Zone Program recently turned down Oxnard’s request to join 41 other enterprise-zone locations in the state.”

Below is a news release from the Franchise Tax Board:

(Sacramento) – The Franchise Tax Board (FTB) announced it accepts California registered warrants (IOUs) as payment of current and past due personal and corporate tax obligations.

To pay a tax liability with an IOU, endorse the IOU on the reverse side with the phrase “Pay to the order of Franchise Tax Board” and your signature then mail it with the tax bill or estimated tax voucher. By law, FTB cannot deposit the IOU until it is payable, but FTB will credit the taxpayer’s account on the date the IOU is received to stop the accrual of interest. If the IOU is not sufficient to pay the outstanding balance, taxpayers should send an additional payment for the difference. Otherwise, the taxpayer will receive a bill reflecting the new balance due.

On October 2, 2009, FTB will redeem the IOUs it has received with the Treasurer. If a taxpayer submits an IOU after October 2, FTB will deposit it and then credit the account with the face value of the warrant plus applicable interest.

Taxpayers wanting to receive the accrued interest from their IOUs must hold them until October 2, 2009, the date IOUs are redeemable.

A registered warrant is a “promise to pay,” with interest, that is issued by the State when there is not enough cash to meet all of the State’s payment obligations. If there is sufficient cash available, registered warrants will be paid by the State Treasurer on October 2, 2009. For more information, see the Treasurer’s website STO Registered Warrant Informationor the Controller’s website California State Controller’s Office: Frequently Asked Questions about Registered Warrants (IOUs).

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.