The primary benefits are as follows:

• An income tax hiring credit
• An income tax credit based on sales and use tax paid
• A net interest deduction for lenders

California Enterprise Zone Hiring Tax Credit
If you hire an eligible employee to work in the Zone, you may qualify for a state hiring tax credit. Each employee your business retains for five years could save you $37,440 or more over a 5-year period. 

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 qualified wages paid during the first 5 years that a qualified employee works for an enterprise zone employer, the hiring credit is 50% of qualified wages paid or incurred during the employee’s first year of employment, and 40%, 30%, 20%, and 10% of qualified wages paid or incurred during the second, third, fourth, and fifth years, respectively. 

For purposes of the enterprise zone hiring credit, “qualified wages,” means that portion of wages incurred by an employer during the income year with respect to qualified employees that does not exceed 150% of the minimum wage established by the California Industrial Welfare Commission.  The wages must be received during the first five years that an employee works for an enterprise zone employer. Wages paid or incurred on or after the zone expiration date may not be claimed, except with respect to qualified employees employed prior to the zone expiration date.  Although California law provides for a limitation based on the employee’s hourly wage, a limitation does not exist regarding the number of hours worked by a qualified employee.   

An individual is a “qualified employee” if the individual:

§         Was hired after the enterprise zone received its final designation;

§         Spends at least 90% of work time on activities directly related to the conduct of a trade or business located within an enterprise zone;

§         Performs at least 50% of the work within the boundaries of the enterprise zone; and

§         Was an employee who qualifies for the former program area hiring credit or was at the time of hire:

1.      A person receiving or eligible to receive subsidized employment, training or services funded by the Federal Job Training Partnership Act (JTPA);

2.      A person eligible to be a voluntary or mandatory registrant under the Greater Avenues for Independence Act of 1985 (GAIN);

3.      A member of a targeted group as defined in the federal Work Opportunity Tax Credit (WOTC);

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 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:

§         Federal Supplement Security Income benefits (SSI);

§         Aid to Families with Dependent Children (AFDC);

§         Food Stamps; or

§         State and local general assistance.

12. A resident of a targeted employment area (TEA); or

13. A Native American. 

Example:

This example illustrates the mechanics in calculating the Enterprise Zone Hiring Credit for a single qualified employee taking into consideration the following assumptions:

-          Qualified employee (for the EZ hiring credit) works at least 5 years for the EZ Company.

-          Qualified employee works full time (i.e., 2,080 hours per year)

-          Qualified employee makes at least 150% of the minimum wage *

-          Minimum wage rate is the same each year for purposes of this example.

* NOTE:  For the 2008 year, the minimum wage is $8.00 per hour.  As a result, the EZ hourly wage limitation is $12.00 ($8.00 per hour x 150% = $12.00). 

California Enterprise Zone Sales and Use Tax Credit
As a corporation, the companies may claim a credit equal to the sales or use tax paid or incurred to purchase the first $20 million of qualified machinery ($1 million for individuals).  Qualified machinery is the machinery or machinery parts used to:

§         Manufacture, process, combine or otherwise assemble a product

§         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

§         Motion picture manufacturing equipment central to production and post-production, including cameras, audio recorders, and digital image and sound processing equipment

The business must use the machinery exclusively within the boundaries of the enterprise zone. Use tax paid on purchases of machinery outside California 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 sales tax paid on qualified property purchased using a financial (conditional sales) contract qualifies for the sales and use tax credit. 

California EZ Interest Deductions for Lenders:
A bank or individual making a loan to a business whose sole activity takes place in the Zone may deduct direct expenses incurred in making the loan from the interest income. The lender may also take a deduction equivalent to the net interest produced by the loan. As a borrower, this could mean more favorable rates or terms on a business loan

For detailed information concerning these incentives, please review FTB Publication 3805Z on their website at http://www.ftb.ca.gov/forms/index.shtml