Corporate Tax Incentives

California Enterprise Zone Program

The State of California provides for many economic development areas, designated by the state and local government, to increase development and encourage business growth. One of the most common of these areas are referred to as an Enterprise Zone. California Enterprise Zones cover specific geographic areas and are designated for a period of 15 years. To encourage economic growth, businesses that operate within the designated areas are able to take advantage of special tax incentives that can generate substantial financial savings on an annual basis.

Estimated annual benefit for a business participating in the California Enterprise Zone Program:

Incentive Programs

The California Enterprise Zone (CAEZ) Hiring Credit Program allows employers to claim a credit based on a percentage of the qualified wages paid to employees qualified under 18 possible categories. The areas of qualification relate to the circumstances that exist at the time of hire such as the employee’s county of residence, military experience, job history, receipt of public assistance and amount of household income earned prior to employment.

Once we complete the official process of securing a certificate from the city, the enterprise zone employers are allowed a credit based on a percentage of qualified wages paid or incurred during the income year with respect to qualified employees for a 5 year (60 month) period. For the first year of employment, the percentage allowed is 50% and 40%, 30%, 20%, and 10%, respectively for the next 4 years. Qualified wages are limited to the total hours work multiplied by the lesser of the employee’s hourly wage rate or 150% of minimum wage.

Qualification Categories

See below for an example of the credit calculation for a single qualified employee:

* Employee hired during 2010 when the minimum wage was $8; Maximum hourly that can be used is $12 (150% x $8)

California Enterprise Zone Sales and Use Credit

As a corporation, the companies may claim a credit equal to the California sales and use tax paid or incurred to purchase the first $20 million of qualified machinery ($1 million for other type of taxpayers). Qualified machinery is the machinery or machinery parts used to:

• Manufacture, process, combine or otherwise   assemble a product
• Motion picture manufacturing equipment central   to production and post-production, including cameras,  audio recorders, and digital image and sound  processing equipment
• Produce renewable energy resources
• Control air or water pollution
• Data processing and communications equipment,  including computers, computer-automated drafting systems, copy machines, telephone systems, and faxes

The business must use the machinery exclusively within the boundaries of the enterprise zone. Use tax paid on purchases of machinery outside of California can qualify for the sales and use tax credit only if machinery of comparable quality and price was not available in California at the time it was purchased. The tax paid on qualified property purchased using a financial (conditional sales) contract qualifies for the sales and use tax credit.