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California Tax Incentives

tax@marcumllp.com

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The following listing provides information on a variety of select business incentives, some of which are tax credits or exemptions while others are non-tax incentives.

California Enterprise Zone Tax Credits

The state of California offers many Enterprise Zone Tax Credits under its Enterprise Zone Program established in 1984. Designed to stimulate growth and development in many areas of the state, the Enterprise Zone Program includes 42 designated zones today, which encompass many counties and cities within the state. The Program creates significant tax savings through tax credits for eligible companies within the zones.

Unfortunately, the California Legislature is in the process of reducing or potentially discontinuing some of the valuable business tax credits under Senate Bill 974. The bill has already been approved by the Senate and is currently awaiting vote in the State Assembly. If passed, the bill will go into effect for tax years beginning January 1, 2011.

Currently, the Enterprise Zone Program offers the following business tax credits which provide significant tax savings for many eligible businesses:

• Hiring Tax Credit: This credit allows businesses to take credits of up to $37,440 for hiring qualified employees, and is based on the year the employee was hired and the wages over a five year period. This increased cash flow and decreased labor costs generally help businesses with high turnover and high employee counts. Often, manufacturing, retail clothing, restaurants and fast food companies benefit greatly from this credit.
• Sales and Use Tax Credit: This credit has the potential for a 100% credit for qualified sales tax purchases such as machinery & equipment, computers, fax machines and many other items.
• Business Expense Deduction: Tangible personal property purchased by a business may qualify for accelerated depreciation in that the business may elect to deduct up to 40% of the cost of such property as a business deduction rather than a capital depreciable expense.
• Net Interest Deduction for Lenders: Lenders who make commercial loans to businesses who are solely located within Enterprise Zones are exempt from state income tax on the net interest income they earn on such loans. Potential reduction of interest rates for borrowers is an important result of this credit.
• Net Operating Loss Carryover: Businesses located within Enterprise Zones may take a 100% Net Operating Loss deduction which may be carried forward for 15 years.

Highlights of changes included in the bill include decreasing the number of qualified employees for potential hiring tax credits by removing the “Targeted Employment Area” from the list of qualifying eligible criteria for hiring employees. In addition, businesses will no longer be able to obtain credit for hiring qualified employees retroactively. A strict 28 day deadline will be established for submitting documentation. Currently, businesses are able to obtain retro-active credit for hiring employees and filing the necessary documentation. Other changes will also affect the Hiring Tax Credit, as well as other Credits that are currently offered.

There are many such zones with within the state where businesses can obtain these benefits and significant credits, including but not limited to Compton, Los Angeles, San Diego, Long Beach, Lancaster, Pasadena, and Santa Ana. If your Company may be eligible for the above credits, it is important to take action to take advantage of the credits before they are reduced or even discontinued. Contact your Marcum Tax Professional indicated below to see if your business may qualify before it is too late.