The Center of the California Enterprise Zone Information Universe


FTB “Tax News” January 2010

Here is the January 2010 edition of the FTB’s “Tax News” newsletter. It includes this item about the Enterprise Zone Program:

In our June 2009 issue of Tax News we asked the question, “Are you familiar with California’s Enterprise Zones?”

We now ask, “Are you aware some taxpayers who work in an Enterprise Zone may be entitled to a credit for the wages they earned?”

The Enterprise Zone tax incentive programs were created to help local businesses, and encourage outside businesses to locate in economically depressed areas. Also, the programs have a provision that allows low income individuals working within an Enterprise Zone to claim a credit that may help eliminate their California tax liability.

The Enterprise Zone Employee Credit is five percent of the wages attributable to employment within an enterprise zone up to $10,500. The maximum credit per zone is $525. The Enterprise Zone Employee Credit is reduced by nine cents ($0.09) for every dollar the taxpayer receives in excess of $10,500 and any unused credit is lost (no carryover is allowed).

The Enterprise Zone Employee Credit is claimed on form FTB 3553 and the taxpayer must file a Form 540 or the Long Form 540NR to claim this credit. The Enterprise Zone Employee Credit can only be used to offset the tax attributable to employment within the enterprise zone. If a taxpayer earned wages in more than one zone, a separate form FTB 3553 is needed for each zone.

The following business-related tax incentives are also potentially available to a taxpayer doing business in an Enterprise Zone, so you may want to see if your clients are doing business within one of the state’s many Enterprise Zones.

Hiring credit.
Sales or use tax credit.
Business expense deduction.
Net interest deduction for lenders.

Enterprise Zone tax incentives apply only to business activities and investments that take place in an Enterprise Zone that has received final designation.

While these Enterprise Zone incentives have been around for quite some time, there have been recent changes to the zones.

For a listing of all Enterprise Zones, expired, active and conditional, or to check if any of your clients work or have a business located within an Enterprise Zone, go to the California Department of Housing and Community Development (HCD) website at www.hcd.ca.gov/fa/cdbg/ez/.

For more information on the Enterprise Zone incentives and the Enterprise Zone Employee Credit, please call our Enterprise Zone Hotline at 916.845.3464.

I think there is a mistake here. The article state, “Enterprise Zone tax incentives apply only to business activities and investments that take place in an Enterprise Zone that has received final designation.” However, AB 1550 explicitly enabled taxpayers to utilize the benefits of the program even before a conditionally designated zone receives its final designation:

Section 7074.2(c) Notwithstanding any other provision of law, an expiring enterprise zone that applies for a new enterprise zone designation pursuant to Section 7073 or 7073.1, and receives a conditional designation letter from the department, may offer, and a taxpayer doing business within the geographic boundaries of the new zone referenced in the conditional designation letter shall be eligible to receive, all enterprise zone benefits until the department makes a final designation or declines to redesignate the zone. The department shall make the effective date of the new zone the date of expiration of the previous designation and the term of the new zone shall begin on that date.

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