Ideas on how to save money with CA state govt funds for your company. As of 2007, the SF Enterprise zone inlcudes the ENTIRE downtown business district

1. Enterprise Zone Tax Benefits
Create organic working capital
Maximize tax savings
Increase cash flow

2. Agenda
1. What is an Enterprise Zone?
2. Bay Area EZ Locations
3. Available Enterprise Zone Benefits
4. Hiring Credit
5. Sales or Use Tax Credit
6. Net Interest Deduction
7. Enterprise Zone Credit Nuances
8. Questions?
© 2009, Tax Incentives Group, LLC 1

3. What is an Enterprise Zone?
Specially designated area within California
Regulated at the State level and administered at
both State and Local levels
Created to encourage job growth, new development,
and investment
Enterprise Zone businesses qualify for special tax
incentives and credits
Credits are available against California
income/franchise tax
© 2009, Tax Incentives Group, LLC 2

4. Bay Area EZ Locations
San Francisco
Oakland
Pittsburg (pending)
Richmond
San Jose
Watsonville
© 2009, Tax Incentives Group, LLC 3

5. Available Benefits
Hiring Credit
Sales or Use Tax Credit
Business expense deduction
Net interest deduction for lenders
Special Net Operating Loss treatment
© 2009, Tax Incentives Group, LLC 4

6. Hiring Credit
Businesses within an Enterprise Zone can
claim the hiring credit for an employee
who:
Was hired after the Enterprise Zone received its
designation;
Spends at least 90% of work time on activities
related to business within the Enterprise Zone;
Performs at least 50% of their work within the
Enterprise Zone; and
Is determined to be a “Qualified Employee”
© 2009, Tax Incentives Group, LLC 5

7. Qualified Employees
Qualified employees are those who are:
1. A resident of a targeted employments area (TEA)
2. Recently separated or Vietnam-era veteran
3. Dislocated workers
4. Economically disadvantaged
5. Receiving or eligible for SSI, AFDC/TANF, food
stamps or General Assistance
6. Enrolled in or eligible for CalWORKS, WIA or
WOTC programs
7. Disabled individuals or disabled veterans
8. Ex-offenders
9. Native American, Native Samoan, Native
Hawaiian
© 2009, Tax Incentives Group, LLC 6

8. Hiring Credit Workflow
1. Develop IDR and work plan
2. Gather employee information
3. Perform TEA analysis
4. Schedule and conduct employee interviews
5. Gather documentation from employees
6. Prepare voucher applications & supporting
documentation
7. Submit voucher applications
8. Collaborate with government authorities
9. Prepare schedule with qualified employees
10. Develop IDR for payroll
11. Gather payroll data
12. Perform computations for the Hiring Credit
13. Develop Memo outlining benefits
14. Establish internal documentation
© 2009, Tax Incentives Group, LLC 7

9. Hiring Credit – Case Study
Assume Company X has 10 employees working within
the Enterprise Zone, and only 5 of these employees
qualify. Each employee makes $12/hour and works
2080 hours per year = $24,960 for base wage purposes
The following hiring credits would be available:
Year 1 $ 62,400
Year 2 $ 49,920
Year 3 $ 37,440
Year 4 $ 24,960
Year 5 $ 12,480
Total Credit $187,200
© 2009, Tax Incentives Group, LLC 8

10. Hiring Credit – Reality Check
Company X
CALIFORNIA ENTERPRISE ZONE
HIRING CREDIT
FYE 12/31/07
(1) (2) FY 2007 FY 2007 1st 12 mos. 2nd 12 mos. 3rd 12 mos. 4th 12 mos. 5th 12 mos.
Hire Min. Allowed Actual Lesser of Total Qualified Qualified Qualified Qualified Qualified Qualified
Employee Date Wage 150% Wage Rate (1) or (2) Hours Wages Wages Wages Wages Wages Wages
Employye A 10/17/2004 $ 7.50 $ 11.25 $ 10.25 $ 10.25 466 $ 4,777 - - 3,795 982 -
Employee B 10/13/2005 $ 7.50 $ 11.25 $ 11.54 $ 11.25 1,700 $ 19,125 - 14,986 4,139 - -
Employee C 10/3/2006 $ 7.50 $ 11.25 $ 9.25 $ 9.25 675 $ 6,244 4,722 1,522 - - -
Employee D 1/1/2007 $ 7.50 $ 11.25 $ 17.31 $ 11.25 2,080 $ 23,400 23,400 - - - -
Employee E 4/10/2007 $ 7.50 $ 11.25 $ 21.63 $ 11.25 1,283 $ 14,434 14,434 - - - -
Total Qualified Wages $ 67,980 $ 42,556 $ 16,508 $ 7,934 $ 982 $ -
Credit Percentage 50% 40% 30% 20% 10%
Total $ 21,278 $ 6,603 $ 2,380 $ 196 $ -
TOTAL HIRING CREDITS EARNED 12/31/2007 $ 30,457
© 2009, Tax Incentives Group, LLC 9

11. Sales or Use Tax Credit
An Enterprise Zone business may claim a
credit equal to the sales or use tax
paid/incurred for purchase of “qualified”
property
Qualified property includes the purchase of
machinery or machinery parts used in the
following:
Fabricating, processing, assembling, and
manufacturing;
Production of renewable energy resources;
Air or water pollution control mechanisms; or
Data processing and communications equipment
© 2009, Tax Incentives Group, LLC 10

12. Qualified Property
What is considered “qualified property”?
How is fabricating and processing defined?
How is data processing defined?
© 2009, Tax Incentives Group, LLC 11

13. Sales or Use Tax Credit Example
Assume Company X purchases $100,000 worth of
qualified property. The sales tax rate is 9.50%.
The Sales or Use Tax credit would be calculated as
follows:
Amount of qualifying
purchases $100,000
Amount of state & local
sales tax paid $ 9,500
Total Credit $ 9,500
© 2009, Tax Incentives Group, LLC 12

14. Net Interest Deduction
Lenders can deduct from California income
the amount of “net interest” received on
loans made to a trade or business located
within a California Enterprise Zone
Net interest is defined as the full amount of
interest, less any direct expenses incurred
in making the loan
The cost of funds may be calculated as a
percentage, based on the average cost of
deposits divided by the average yield on
loans
© 2009, Tax Incentives Group, LLC 13

15. Net Interest Deduction
In order to qualify, the loans must meet
certain requirements
The loans must be made to a trade or business
located solely within the Enterprise Zone;
The money loaned must be used strictly for the
business activities within the Enterprise Zone;
The loans must be made after the designation of
the Enterprise Zone; and
The lender must have no equity or other
ownership interest in the trade or business
© 2009, Tax Incentives Group, LLC 14

16. Enterprise Zone Credit Nuances
Refunds available over 4-year look-back
period as well as prospective
Limitation based on EZ income
Apportionment formula used
© 2009, Tax Incentives Group, LLC 15

17. Enterprise Zone Credit Nuances
Unlimited credit carryover
Company X generates $50,000 of credit in
Year 1
Year 1 tax liability equals $20,000
$30,000 available credit carryover in Year 2
© 2009, Tax Incentives Group, LLC 16

18. Enterprise Zone Credit Nuances
Credits flow down to shareholders in
pass-through entities
Pass-through entities
LLC
LLP
LP
General Partnership
Sole Proprietorship
S-Corporation
© 2009, Tax Incentives Group, LLC 17

19. Questions?
© 2009, Tax Incentives Group, LLC 18

20. Contact Information
Contact:
Scott S. Nelson, Managing Partner
Tax Incentives Group, LLC
(415) 565-7171, ext.1
scott@taxincentivesgroup.com
www.taxincentivesgroup.com
© 2009, Tax Incentives Group, LLC 19