Tax Incentives via Enterprise Zones in California

Tax planning is an important piece of homework to take care of when it comes to cash flow planning a business.  So many decisions you have to make are altered by them, from staffing, to HR issues, to where you are located.

In regards to location planning, there is the obvious, which are business license fees for the city/county that you plan to operate in.  Beyond that, you may have heard of Enterprise Zones.  Enterprise Zones are areas in which the State offers tax incentives for companies to open or relocate there.  These include incentives to hire employees for the location in the Enterprise Zone.  Here are details from the State of California website for the Enterprise Zones:

• Hiring Credits – Firms can earn $37,440 or more in state tax credits for each qualified employee hired;
• Up to 100% Net Operating Loss (NOL) carry-forward. NOL may be carried forward 15 years (suspended for tax years 2002 and 2003);
• Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts;
• Up-front expensing of certain depreciable property. Lenders to Zone businesses may receive a net interest deduction;
• Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment;
• Enterprise Zone companies can earn preference points on state contracts.

Here is a map of Enterprise Zones.

The good news is that we have worked with a few clients in Enterprise Zones and they have reaped the benefits of operating in these locations.

Enterpise Zones Department Logo

The bad news that you need to be aware of in case you are planning on moving to one of these Enterprise Zones is that under a proposed budget from Governor Jerry Brown, is that the Enterprise Zone Program is on the chopping block.  Various business groups have come out in support of keeping the program, yet the Public Policy Institute of California conducted their own analysis and concluded that the State was not getting a good enough of a return on the incentives offered to justify keeping the program intact.   We can tell you that for those businesses that are in Enterprise Zones and using the credits, the removal of these incentives would be a damaging blow that could lead to job losses and possible business closures or relocations to out of state areas.

Which side are you on?  For more information on how Enterprise Zones can help you out, call (323) 213-9193 or email cs@justelementary.com