The California Enterprise Zone (EZ) program was repealed for employees hired and equipment purchased after December 31, 2013. What does the repeal mean if your business is in a CA enterprise zone? For starters, you cannot make any more CAEZ-qualified hires or purchases. 

The following six factors of the CA Enterprise Zone program repeal will help you navigate this major tax credit change: 

1. You may be too late, specifically if you’ve never claimed the CA Enterprise Zone hiring credit.
   The biggest loss of the California EZ program repeal comes for those companies that didn’t claim the hiring credit when they could have. The unfortunate reality is that if you don’t have a CAEZ employee voucher, you may not claim the hiring tax credit. It’s now too late to receive vouchers, as the enterprise zones have been unable to issue them since December 31, 2014. 
   
   
2. For those with CA Enterprise Zone employee vouchers, there is still hope, with the benefit of a tax credit “roll forward.” 
   If you have CAEZ vouchers for qualified employees, you may continue to generate the tax credit during these employees’ first 60 months – as long as they continue to work in a CA enterprise zone at least 50% of the time each year. 
   
   For example, if you hired a qualified employee on December 31, 2013, and received a CAEZ voucher for the employee, you may continue to generate a tax credit for the employee for each year through December 30, 2018. 
   
   
3. The CAEZ sales & use tax credit (relating to the purchase of qualified equipment) is also currently a viable tax credit option. 
   Plenty of companies that claimed the CA enterprise zone hiring credit simply aren’t aware they also qualify for the CAEZ sales & use tax credit. All companies, including professional service companies, are qualified to claim the credit for resources used towards purchasing computers, copiers, telephones and faxes through December 31, 2013.
   
   For example, companies that made qualified purchases prior to December 31, 2013 may still claim the CAEZ sales & use credit, so long as proof of purchase is provided.  
   
   
4. CA enterprise zone carryover periods are now shorter.
   When the California EZ program credits were repealed, the carryover period was reduced from an unlimited timeframe to only 10 years. However, existing carryover that was generated in 2013, and prior, expires in 2023. For credits generated in 2014 and subsequent years, the carryover is 10 years from the year the credit was generated.  For example, a credit generated in 2014 will expire in 2024, while a credit generated in 2018 will expire in 2028.  
   
   
5. Remember to retain all documentation for employees and equipment purchases. 
   Due to the unlimited carryover provisions of the old law of CAEZ, companies often don’t realize just how long they are required to retain documentation. It is extremely important to retain documentation that supports qualification and calculation of the CA enterprise zone credit. 
   
   You could easily be audited many years after you hire a CAEZ-qualified employee, and claim credit. If you’re unable to provide support for the tax credit, the Franchise Tax Board (FTB) may disallow the entire credit.
   
   Here’s an example: Say you hired a qualified employee on April 5, 2001, you obtained a voucher for the employee and claimed credit in the amount of $12,000 in 2001 and $8,000 in 2002 (the year the employee resigned). Your company generated taxable losses from 2001 thru 2005, and then, in 2006, turned the corner to taxability. However, accumulated net operating loss carryovers caused the credit to carryover for four additional years until 2010 when the $20,000 CAEZ credit was finally utilized. The 2010 tax year is currently your company’s earliest open taxable year since CA has a four-year statute of limitations. If the FTB selects the 2010 return for audit in 2015, the company would be required to provide documentation for an employee hired 14 years earlier. 
   
   
6. Do not miss out on using credits because you calculated the allowable credit amount improperly. 
   Over half of the tax returns we review show LESS credits used than they should have if the business has less than 100% of their operations in the enterprise zone and/or business operated in more than a single enterprise zone.  By not claiming the full amount of the allowed credit, a business may not fully exhaust their entire credit carryover balance before it expires. 

Ready to learn more about the CAEZ employment tax incentives program and how the repeal affects your business’s ability to benefit from this tax credit? Call 866-444-4880 or click here to speak directly with an experienced tax expert at Corporate Tax Incentives.