California Enterprise Zone – REPEALED

Employment Tax Incentives Hiring Program

The California Enterprise Zone (CAEZ) program was repealed for employees hired and equipment purchased after December 31, 2013.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

The following are some other factors to consider about the CAEZ program repeal:

If you’ve never claimed the CAEZ hiring credit, it’s too late.

The tragedy of the California EZ program repeal is that there are companies that did not claim the hiring credit when they could have. The unfortunate reality now is that if you do not have a CAEZ voucher, you may not claim the tax credit. And, it’s too late to receive vouchers since the “zones” have been unable to issue them since December 31, 2013.

For those with CAEZ vouchers, there is the benefit of a tax credit “roll forward.”

If you have CAEZ vouchers for qualified employees, you may continue to generate credit during these employees’ first 60 months, as long as they continue to work in a California 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.

The California EZ equipment tax credit is still a viable option.

Some companies that claimed the CAEZ hiring credit were not aware they also qualify for the equipment credit. All companies, including professional service companies, are qualified to claim the CAEZ equipment credit for resources used toward purchasing computers, copiers, telephones and faxes.

For example, companies that made qualified purchases prior to December 31, 2013 may still claim the CAEZ equipment credit, so long as proof of purchase is provided (such as an invoice).

CAEZ carryover periods are now shorter.

When the California EZ program credits were repealed, the carryover period was reduced from an unlimited time frame to only 10 years. However, existing carryover that was generated in 2013 and prior expires in 2024. If you do not have 10 years of carryover, you need to review your equipment purchases to identify any potential CAEZ credit.

Remember to retain your documentation for employees and equipment purchases.

It is extremely important to retain documentation that supports qualification and calculation of the CAEZ credit for as long as is necessary. Due to the unlimited carryover provisions of the old law, companies often don’t realize just how long they are required to retain documentation.

For example, you may be audited many years after you hire a CAEZ-qualified employee and still claim credit. If you’re unable to provide support for the credit, it may all be disallowed by the Franchise Tax Board (FTB).

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? Click here to connect with a Tax Navigator at CTI.

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