Business Owners: Enterprise Zone Credits Replaced by Three New Incentives

Recently, two significant propositions passed that are especially meaningful for small business owners in California. New California Incentives AB93 and SB90 are set to alter and reshape the way that roughly $750 million is distributed annually towards building enterprises. These three new incentives are the Sales Tax Exemption, Hiring Credit and Investment Incentive.

1. Sales Tax Exemption. Beginning July 1, 2014, a statewide sales tax exemption will eliminate the California portion of sales tax on basic manufacturing equipment, research and development equipment, and necessary tenant improvements on up to $200 million of purchases annually. This is for businesses located anywhere in California, and there is no filing requirement to receive the exemption (though keep in mind that tracking to verify that the $200 million limit is not exceeded and that proper use is maintained will ultimately be necessary to prevent sales and use tax from later being assessed).

2. Hiring Credit. If your business is in an area of California that is within the top 25 percent for unemployment and poverty rates in the state, your new employees may qualify for a hiring credit. Qualified new employees include long-term (6 months) unemployed workers, veterans within 12 months of end of service, ex-offenders, and recipients of CalWorks or general assistance. The credit is only available where there is a net increase in jobs and is determined by calculating 35 percent of wages above $12/hour (or $10/hour in limited pilot areas) up to $28/hour for employees hired between January 1, 2014, and January 1, 2021. The maximum credit has been increased from $36,000 per employee to $56,000 per employee over five years.

3. Investment Incentive. Finally, the California Competes Credit will be established to give businesses the opportunity to receive competitive tax credits. These incentives are based upon several factors, including the number of jobs created, severity of poverty in the area, and the minimum wage limit. Credits must be approved by a committee, with 25 percent of the credits reserved for small businesses in California.

When comparing to the former Enterprise Zone program, these bills are meant to allocate more money to small business owners and expand the reach to include more than just those businesses within the Enterprise Zones. Also keep in mind that the Enterprise Zone Credits can still be carried forward for up to 10 years and that you can continue to claim credits for employees hired before January 1, 2014 under the prior rules.

If you are a business owner and think the new proposals may affect you and your organization, the skilled tax accountants at Staszak & Co. are ready to help you plan your best course of action.