New California State Enterprise Zone Tax Incentives

At the end of 2013, the state of California brought an end to the Enterprise Zone (EZ) program in effect since 1984. The program was designed to encourage growth in economically depressed areas of the state through generous tax incentives and credits. This means at the beginning of the year EZ hiring credits, sales/use tax credits, NOL carryover, business expense and net interest deduction incentives were repealed. Despite the shift, the state did create several new tax incentives to continue encouragement of economic growth in depressed areas and within key industries of importance to California. To help clients, prospects and others learn about the new incentives, JLK Rosenberger has provided a brief summary below. Remember, not all former EZ companies will qualify for the new incentives.

  • New Employment Credit – This credit is available to companies located in former Enterprise Zones that hire a qualified full time employee on or after January 1, 2014. A qualified employee includes an individual that was unemployed for the prior six months, unemployed veteran, ex-offenders convicted of a felony, recipient of the earned income tax credit or a recipient of CalWORKs assistance. Companies that are in the temporary staffing, retail or food service industry are ineligible for the credit. The position must be newly created and not a replacement. Finally, wages may not be less than $12 per hour and qualifying employees must work at least 35 hours per week. The credit amount will vary for each company but is based on a combination of employee pay and annual number of hours worked.
  • California Competes Fund – This new incentive is a onetime benefit designed to encourage companies to relocate or expand operations in California. The credit is distributed by the California Competes Committee and includes a detailed application process. For 2014-2015 the state has $150M in credits to distribute to qualifying companies although 25% of the credits are reserved only for small businesses. Criteria used when determining which company to select includes the number of jobs created, wages paid, unemployment/poverty in the area where operations are opened, and if other incentives are being applied for/awarded. It is important to note that unlike other credits, California Competes does require the recipient to enter into a written agreement with the state to ensure specific requirements are met.
  • Manufacturing, Research & Development Exemption – Effective July 1, 2014, certain California manufacturers and research and developers can qualify to receive an exemption from a portion of the sales and use tax assessed on equipment purchases and leases. Qualifying purchases include equipment used in any stage of the manufacturing, processing, refining or recycling process, used for research and development, or used to maintain or repair equipment outlined in the prior categories. A maximum of $200M in qualifying purchases can be included on an annual basis. The most important aspect of this exemption is that it is NOT related to EZ boundaries, which means qualifying companies anywhere in California can benefit.

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Interested in determining whether your company qualifies for the new tax credits and incentives? Each incentive has different qualification requirements, so it’s important to discuss your situation with a professional to determine if you qualify. Remember, many of the incentives are available for a period of years! For additional information on the new incentive program or to determine if your company qualifies, please contact JLK Rosenberger at 949-860-9902, or click here to contact us.