Incentives
- How Your Company Can Use Zone Tax Incentives
- Your Company May Be Eligible For Thousands Of Dollars In Benefits
- Tax Benefits For Employees
How Your Company Can Use Zone Tax Incentives
A business located within the Enterprise Zone can receivetax credits each time it hires an eligible new employee or purchases qualified new machinery, equipment orpollution control devices. Tax credits also are available to lenders who make loans to businesses in the zone andto employees who work there. Enterprise Zone businesses are automatically eligible for benefits. There is nocertification process.
Six basic tax incentives are associated with the Enterprise Zone:
Sales and use tax credit; hiring tax credit; business expense deduction for business property; net operating loss carryover; et interest deduction for lenders; and employee wage credit
Your Company May Be Eligible For Thousands Of Dollars In Benefits
Sales and Use Tax Credit:
In any year, individuals may claim a credit equal to the sales or use of tax paid orincurred to purchase the first $1 million of qualified machinery costs. Therefore, if your company spends $50,000to purchase eligible equipment, you would be eligible for a credit of $3,875 (the amount of your sales tax), againstyour state business income tax on zone income. These credits do not apply to real estate purchases. In someinstances, tax credits can be carried over.
Hiring Tax Credit:
A qualified employee who works 2,080 hours during the year (full-time equivalent) and earns $10.13 per hour (for a total salary of $21,070) would earn your company a credit of $10,535 ($21,070 x50%) against your state business income tax on zone income in their first year of employment. In subsequentyears, credits are reduced by 10% annually over a five-year period. This credit may be taken for up to five yearsfor each employee until the Enterprise Zone expires in October, 2006. The maximum hiring credit available isbased on an hourly wage of $10.13. If an employee earns more than $10.13 per hour, the employer must computethe credit using $10.13 as the hourly wage.
Full-time, part-time, temporary or seasonal employees all qualify if they are:
A qualified dislocated worker; are eligible to receive subsidized employment training or services under the terms of the Federal Job TrainingPartnership Act (JTPA/Workforce Investment Act (WIA); an economically disadvantaged person 14 years of ageor older; a disabled individual who has completed, is eligible for, or is enrolled in a state rehabilitation plan; annex-offender; a Native American; a member of a targeted group as defined by the Federal Work Opportunity TaxCredit (WOTC); a qualified veteran; a resident of a Targeted Employment Area (TEA) and hired after 9/23/97;and an eligible recipient of various forms of public assistance such as: SSI, AFDC, Food Stamps or State/Localpublic assistance. At least 90 percent of the employee’s work must be directly related to a trade or businessactivity located in the Enterprise Zone and at least 50 percent of the employee’s work must be performed insidethe boundaries of the Enterprise Zone.
Retroactive Vouchering and Tax Refunds:
Employees hired in prior years may still be vouchered if found to bequalified (with proper documentation). Refunds for state income taxes paid in prior years may be obtained byfiling amended returns. Companies should consult with their tax professional for more information.Business Expense Deductions: Businesses conducting a trade or business within the City of Fresno EnterpriseZone may elect to treat 40% of the cost of qualified property as a business expense in the first year it is placed inservice. The amount of this deduction is limited to $20,000 ($50,000 x 40%). Qualified property includes, but isnot limited to, tangible personal property (excluding buildings) acquired by purchase for exclusive use within theEnterprise Zone.
Net Operating Loss Carryover:
100% of NOL’s of individuals or corporations doing business in an EnterpriseZone may be carried over to future years to reduce the amount of taxable income derived within the zone or area.Tax Benefits for Lenders - Net Interest Deductions:A bank or individual making a loan to a business whosesole activity takes place in the zone may deduct loan expenses incurred from income earned on the loan interest,plus take a deduction equivalent to the net interest produced by the loan. Eligible expenses include commissionspaid to the loan representative, the cost of the money used to fund the loan and bad debt expenses. Employersmay be able to leverage these benefits to achieve lower interest rates or loan fees.
Tax Benefits For Employees
Low-Wage Employee Tax Credit:
A state income tax credit is available to qualified employees working in theEnterprise Zone. The credit is equal to 5% of an employee's earnings up to a maximum amount of $10,500 inearnings per year. For example, a single employee earning $20,000 is eligible for a $525 state income tax credit(formula: gross income of $10,500 x .05 = $525)