What is an Enterprise Zone?
The California Technology, Trade and Commerce Agency designate economically depressed areas in California. They establish Enterprise Zones to encourage and stimulate growth, development, and investment in the area. Taxpayers who invest, operate, or locate a trade or business within an Enterprise Zone may be eligible for special tax incentives.
How do you know if you are located in an Enterprise Zone?
To verify whether your business is located within an Enterprise Zone, you may contact the California
Technology, Trade and Commerce Agency at:
ENTERPRISE ZONE PROGRAMS
CALIFORNIA TECHNOLOGY, TRADE AND COMMERCE AGENCY
1102 Q STREET SUITE 6000
SACRAMENTO CA 95814
Telephone: (916) 324-8211
FAX: (916) 322-3524
Internet Website: www.commerce.ca.gov
These are the incentives that are available and some of the qualifiers:
What are the available Enterprise Zone tax incentives and who is qualified to take those incentives?
There are five tax incentives available to taxpayers that invest in or operate a trade or business located within an Enterprise Zone. The tax incentives are the:
v Hiring credit.
v Sales or use tax credit.
v Business expense deduction.
v Net interest deduction.
v Net operating loss (NOL) deduction.
For information about each tax incentive, refer to the Enterprise Zone Business Booklet (FTB 3805Z Booklet), or the Guidelines for Businesses Claiming Economic Development Area Tax Incentives (FTB Pub. 1158). A tax credit is also available to employees that earn wages within an Enterprise Zone. See the Enterprise Zone Employee Credit form (FTB 3553).
How do I claim Enterprise Zone tax incentives?
Use the Enterprise Zone Deduction and Credit Summary form (FTB 3805Z), found in the Enterprise Zone Business Booklet (FTB 3805Z Booklet). File this form with your California franchise or income tax return to claim the Enterprise Zone tax incentives. For those tax incentives that require an election, make the election on this form.
The hiring credit, sales or use tax credit, and net interest deduction do not require an election, and can be claimed on either an original return or an amended return. Make your election to claim the business expense deduction on the original return for the year you place the property in service. You cannot make the election on an amended return, and you can only revoke the election with the written consent of the Franchise Tax Board.
Make your election to claim an Enterprise Zone NOL (Net operating loss) deduction on the original return for the year that you incur the NOL. You cannot make the election on an amended return, and you can only revoke the election with the written consent of the Franchise Tax Board.
Do I have to include the form FTB 3805Z with my tax return?
Yes. The Franchise Tax Board is required to annually summarize and provide the information on this form to the California Legislature or the California Technology, Trade and Commerce Agency. The information may be used to evaluate the usefulness of the incentives, to improve the program, or to make future decisions about continuation of the program.
Which employees qualify me for the hiring credit?
For taxable years beginning on or after January 1, 1997, you may qualify for the hiring credit if you hire an employee after an area is officially designated as an Enterprise Zone and before the designation expires.
A qualified employee is an employee who immediately before starting to work for you is any of the following:
1. An employee who qualified for the former Program Area hiring credit;
2. A person receiving or eligible to receive subsidized employment, training, or services funded by the federal Job Training Partnership Act (JTPA), or its successor;
3. A person eligible to be a voluntary or mandatory registrant under the Greater Avenues for Independence Act of 1985 (GAIN), or its successor;
4. An economically disadvantaged individual 14 years of age or older;
5. A qualified dislocated worker;
6. A disabled individual eligible for, enrolled in, or who has completed a state rehabilitation plan;
7. A service-connected disabled veteran;
8. A veteran of the Vietnam era;
9. A veteran who recently separated from military service;
10. An ex-offender;
11. A person eligible for, or a recipient of:
v Federal Supplemental Security Income (SSI) benefits;
v Aid to Families with Dependent Children (AFDC);
v Food stamps; or
v State and local general assistance;
12. A Native American;
13. A resident of a Targeted Employment Area (TEA); or
14. For employees hired during taxable years beginning on or after 1/1/1998, a member of a targeted group as defined in the federal Work Opportunity Tax Credit (as in effect January 1, 2001, in Internal Revenue Code Section 51).
In addition, at least 90 percent of the employee’s work must be directly related to a trade or business activity located in the Enterprise Zone and at least 50 percent of the employee’s work must be performed inside the boundaries of the Enterprise Zone. To determine which employees qualify you for the hiring
credit for taxable years beginning before January 1, 1997, get the Enterprise Zone Business Booklet (FTB 3805Z Booklet) or the Guidelines for Businesses Claiming Economic Development Area Tax Incentives (FTB Pub. 1158), for the year in question.
How long must an employee work for a taxpayer to avoid the recapture rules of the hiring credit?
You must recapture the hiring credit if you terminate the employee before the end of the longer of the following two periods:
v The first 270 days of employment (whether or not consecutive); or
v Ninety (90) days of employment plus 270 calendar days.
A “day of employment” includes any day the employee receives compensation (including paid holidays, sick days, and vacation days). The Enterprise Zone Business Booklet (FTB 3805Z Booklet) and the Guidelines for Businesses Claiming Economic Development Area Tax Incentives (FTB Pub. 1158) discuss exceptions to the recapture rules.
You can locate form FTB 3553, Booklet FTB 3805Z or Pub. 1158 at the following links:
To find form FTB 3553 go to: http://www.ftb.ca.gov/forms/2010/10_3553.pdf
To find FTB 3805Z Booklet go to: http://www.fresnoregionalez.com/files/TaxBooklet10.pdf
To find FTB Pub.1158 go to: http://www.ftb.ca.gov/forms/misc/1158.pdf
If you have any questions concerning Enterprise Zones please contact us at:
7231 Boulder Ave. #526
Highland, CA 92346
The information for this article was obtained from the California FTB web site.