Corporate Tax Incentives

California Enterprise Zones Under Attack

January 10, 2011

California budget: Brown to seek deep cuts, tax-hike extensions – latimes.com.

Due to California’s poor budget situation, the California Enterprise Zone is continuing to receive calls to change or eliminate the benefits received by businesses.   Outgoing Governor Arnold Schwarzanegger was a strong supporter of the program creating many new zones during his term.  However, with the newly elected Governor Jerry Brown coming into office, new one has a clear understanding of what his position will be on the program.  According to an article by the LA Times, the Brown Budget will be target Enterprise Zones.  However, there is no clear indication on how (and if) the program will be changed.  The benefits of the program could possibly be reduced or even eliminated.

Our advise to businesses who operate in Enterprise Zone is to move forward immediately to capture and maximize any available benefits.  Otherwise they take the risk of missing out on these benefits altogether.  The California Enterprise Zone Credits can be quite powerful since they have an unlimited carryover period – under current law they do not expire.

California Extends its Suspension of NOL Deductions – But not the limits on Tax Credits

January 4, 2011

For tax years beginning in 2010 and 2011, the Net Operating Loss (NOL) Deductions continue to be suspended for corporate and individual taxpayers under AB 1452 for taxpayers with income of $500,000 or more.  Taxpayers with less than $500,000 are exempt from the suspension.

It’s important to note that in previously years, California imposed a limitation on the use of income tax credits in addition to the NOL Deduction suspension.  In tax years beginning in 2008 and 2009, taxpayers were only allowed to use credits to offset 50% of their net California tax liability.  The previous 50% limitation with regards to the tax credits were not extended.  As such, taxpayers with credits available will be able to use these credits to a greater extent in the 2010 and 2011 tax years.

Those taxpayers carrying over NOL that they cannot use should focus on generating tax credits do offset a larger portion of their California tax liability

Federal New Hire Act

The HIRE Act offers qualified employers a temporary payroll tax break (Payroll Tax Exemption) for hiring qualified previously unemployed workers. It also includes an increased business tax credit for retaining qualified workers for at least 52 weeks. The benefits can be substantial: up to $6,621 in payroll tax credits and up to $1,000 in business tax credits per eligible employee.

If an employer applies the payroll tax exemption to wages paid to a qualified employee, such wages paid to the employee during the one-year period beginning with the employee’s hiring date may not be taken into account for purposes of the Work Opportunity Tax Credit

Employers are able to back retroactively to capture the benefit but you will need to amend federal payroll tax returns and possibly W-3/W-2 forms as part of the process.

Maryland Hiring Incentive Rebate for Employers

The State of Maryland has come out with a  job creation tax credit program that may be able to save up to $5,000 by hiring certain employees into new positions.  All employees must be Maryland residents hired between March 25, 2010 and December 31, 2010 and meet the following criteria:

•          Individuals at the time of hire must be receiving unemployment insurance benefits or have exhausted their benefits in the previous 12 months and not working full-time immediately preceding the date of hire

•          Employees must be hired into full-time, newly-created positions, or a full-time position that had been vacant for at least 6 months

Be sure to consider this program if have any new employees in the State of Maryland within the eligible period

San Francisco Enterprise Zone Payroll Tax Credit

The San Francisco Enterprise Zone Payroll Tax Credit is a credit against the San Francisco Payroll Expense Tax for new jobs created on or after January 1, 1992.  This benefit will be most applicable for your hires in San Francisco that occurred on or after 8/1/2008 since that is when the program requirements were expanded to include all new hires instead of being limited to positions that result in an overall net increase in employment positions.  However, the law does impose an additional requirement that only San Francisco residents are eligible.  It’s important to note that this local program follows similar qualification guidelines as the state program with one material difference – the local program does not include the Targeted Employment Area Resident category (i.e. qualification based on address).  Based on your current approach to screen only for the address criteria, you are not able to capture this benefit.

The tax credit, for each qualified employee, shall be a varying percentage of the additional tax that would be incurred as a result of additional wages paid for work performed within the Enterprise Zone areas. The dollar amount of such tax credit shall depend both upon the duration of employment (see below) and eligible wages.

We recommend setting up a single employee screening process to capture the San Francisco Enterprise Zone Payroll Tax Credit and other employment tax incentives such as the California Enterprise Zone Hiring Credit and/or the Federal Work Opportunity Tax Credit.