To help stimulate economically depressed areas in California, the legislature has designated 42 different "Enterprise Zones" and provided tax incentives for conducting business in those areas. Businesses that establish facilities, hire workers, invest in equipment and machinery, and make loans in those areas, are eligible for substantial tax incentives.
Many businesses have taken advantage of these incentives, but many eligible businesses have not. Businesses are often unaware of their ability to claim credits or deductions under the Enterprise Zone Program or the extent to which they are legally entitled to them. Businesses that are aware of the Enterprise Zone incentives often claim them only to see the California Franchise Tax Board ("FTB") wrongfully disallow the incentives.
Because Enterprise Zone incentives can be substantial, they have increasingly been a target of FTB income tax audits. These audits have resulted in deficiency assessments on original returns and refund denials on amended returns. The FTB's disallowances are often improper, legally and factually.
What Benefits Are Available in Enterprise Zones?
The Enterprise Zone program consists of several tax benefits, including the following:
- Hiring Credit. Employers who hire certain qualified employees to work within an Enterprise Zone receive a tax credit for wages paid to certain statutorily "qualified employees."
- Sales and Use Tax Credit. Businesses that purchase "qualified property" such as data-processing and telecommunications equipment, pollution control devices and machinery and machinery parts used to fabricate or manufacture a product may earn an income tax credit in the amount of the sales or use tax paid for that purchase.
- Net Interest Deduction for Lenders. Lenders may receive a deduction for the net interest earned on loans made to businesses located in Enterprise Zones.
How Can We Help?
Reed Smith attorneys and support staff can help you take advantage of Enterprise Zones in ways you may not have thought of:
- Getting Sales Tax Credit for Expensed Purchases. The FTB says you cannot get a sales tax credit for purchases that are immediately expensed. The FTB says the credit is limited to capital purchases. We strongly disagree and are handling appeals and litigation to get the full sales tax credit for all qualified purchases used in enterprise zones.
- Credit Carryovers? Increasing Your Income Limitations. If you are unable to use credits because of income limitations, contact us. The FTB's policies trap credits in entities that cannot use them. The FTB's policies understate your income attributable to enterprise zones. We believe the income limitations are being misapplied and that taxpayers are entitled to use a greater portion of their credits than the FTB's policies allow.
What is Our Experience?
Reed Smith has the nation's leading California Enterprise Zone law practice. Our attorneys have been involved in nearly every significant Enterprise Zone controversy, whether at the administrative level or in court. We can help businesses through any step of the process, from making initial determinations of whether unused Enterprise Zone incentives may be available and processing of claims, through litigating the denial of Enterprise Zone incentives. No other firm can match our depth of experience with respect to California Enterprise Zone credits and incentives.
Our attorneys have represented or are representing taxpayers with respect to significant Enterprise Zone issues, as noted below.