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Tax Credits & Incentives - California


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.

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. (This benefit may require a separate application process.)
  • 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. The Net Operating Losses suspended for 2010 and 2011 are not suspended for businesses in the Zone. Carryback periods for Zone enterprises are also modified.

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. The state has designated new zones and Conditionally Designated Zones for 2011. The updated information on all zone locations can be found at ftb.ca.gov.

New Job Tax Credit

California allocated $400,000,000 for this tax credit beginning in 2009. Taxpayers may only claim the credit on an original timely filed return received by the FTB on or before a cut-off date specified by FTB. The cut-off date is the last day of the calendar quarter within which FTB estimates it will have received timely filed original returns claiming the credit that cumulatively total $400 million.

About the credit

  • A new tax credit of up to $3,000 for each additional full-time employee hired is available to small businesses with 20 or less employees beginning January 1, 2009. The credit is prorated on an annual full-time equivalent basis for employees employed less than a full year.
  • The credit is not subject to the 50% limitation for business credits.
  • The total amount of credit available to be claimed by all taxpayers is capped at $400 million.
  • The credit must be claimed on a timely filed original return received by the Franchise Tax Board on or before a cut-off date specified by the Franchise Tax Board.
  • Taxpayers claiming the credit on an original return received by the Franchise Tax Board after the cut-off date is met will be notified that the credit has been denied.
  • Taxpayers that have been denied the credit as a result of the cut-off date being reached will not be assessed an underpayment of estimated tax or underpayment of tax penalty to the extent the underpayment was created or increased by the disallowance of this credit.

An employer will qualify for the credit if:

  • Each qualified full-time hourly employee is paid wages for not less than an average of 35 hours per week.
  • Each qualified full-time employee that is a salaried employee was paid compensation during the year for full-time employment within the meaning of Section 515 of the Labor Code.
  • On the last day of the preceding taxable year, they employed a total of 20 or fewer employees.
  • There is a net increase in qualified full-time employees compared to the number of full-time employees employed in the preceding taxable year. For taxpayers who first commence doing business in California during the taxable year, the number of qualified full-time employees employed in the preceding year would be generally be zero, unless certain special rules apply

California Motion Picture and Television Production Credit

On February 20, 2009, SB X3 15 was chaptered, creating tax credits based on expenditures incurred for film and television productions, which will be allowable to offset California income and franchise tax liabilities for taxable years beginning on or after January 1, 2011.

To claim the credit, qualified taxpayers must first apply to the California Film Commission (CFC). CFC issues credit certificates (certificate) to qualified taxpayers who claim the credit in the taxable year CFC issues the certificate. Under limited circumstances, qualified taxpayers may assign or sell their credit.

Independent Films

Revenue and Taxation Code Sections 17053.85(c)(1) and 23685(c)(3)(A) allow qualified taxpayers to sell a credit attributable to an independent film to an unrelated party.

To qualify as an independent film, the film and producing company must meet the following criteria:

  • The film must have a minimum budget of one million dollars ($1,000,000) and a maximum budget of ten million dollars ($10,000,000).
  • The film must be produced by a company that is not publicly traded.
  • Publicly traded companies cannot directly or indirectly own more than 25 percent of the company producing the film.

The qualified taxpayer selling the credit shall report the following information to the Franchise Tax Board prior to the sale of the credit:

  • The social security number or taxpayer identification number of the unrelated party purchasing the credit.
  • The amount of the credit.
  • The amount of consideration the qualified taxpayer will receive for sale of the credit.

This credit runs through the end of the 2013-2014 fiscal year.

 

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