Action is Needed to Save Enterprise Zones

By Sidney Singleton
    COO Wincentive Corporation

SEPTEMBER 2007 --  Eight California Enterprise Zones are set to expire in 2008, including the Stockton/San Joaquin County Enterprise Zone. The state designated Stockton/San Joaquin County Enterprise Zone on June 22, 1993 and it will expire on June 21, 2008. City and County officials are in the process of applying for a new enterprise zone designation. The area’s success in its bid for a new enterprise zone designation will require community support. You may contact Fran Aguilera, Economic Development Director at 468-3512 for information about the new enterprise zone designation.

Enterprise zone programs target economically distressed areas throughout California. The purpose of the California Enterprise Zone Program is to stimulate economic development, encourage business investment and stimulate local job growth. There are 42 Enterprise Zones located throughout California. Each enterprise zone is in effect for a period of 15 years from their date of designation. Enterprise zone programs offer a wide range of state and local business incentives. These incentives include hiring tax credits, sales and use tax credits, property tax abatements, utility tax exemptions, fee deferral programs, business expense deductions, net interest deduction, etc. 

The Stockton/San Joaquin County Enterprise Zone has played a vital role in attracting new business development to Stockton. The vitality of areas like the Stockton Waterfront Event Center, Airport Business Parks, Airport Gateway Centers and the Port of Stockton have all experienced major business development as a direct result of the enterprise zone. The governor announced, on February 28, 2007, that US Gypsum Corp plans to build a $220 million wallboard plant t the Port of Stockton and employ about 150 people. The port is located within the boundary of the Stockton Enterprise Zone.

 If your business has operations located within the boundary of the Enterprise Zone, substantial state income tax credits may be available. Many of the businesses located within the Enterprise Zone have yet to stake a claim! Most are unaware of the significant tax credits they forfeit year after year. Quite often, firms are just too busy or do not have the in-house expertise required to recover the enterprise zone tax credits. In many cases, the hiring tax credits will remain unclaimed unless the business engages an outside consulting firm to recover them.

The two primary enterprise zone tax incentives are the Hiring Tax Credit and the Sales & Use Tax Credit. These enterprise zone tax credits can be very substantial. Enterprise zone businesses may claim tax credits on up to 50% of the qualified wages paid to an eligible employee. For example, in the first year of employment, business can claim up to $11,700 in hiring tax credit for each eligible employee hired in 2007. Over a period of five years, Enterprise Zone businesses can claim enterprise zone hiring tax credits in excess of $35,100 per qualified employee. Employers must base the hiring tax credit on the lesser of the hourly wage paid or 150% of the minimum wage. (The minimum wage is currently $7.50; 150% of the minimum wage is $11.25.)

Enterprise Zone businesses may also claim an income tax credit for sales or use tax paid or incurred on certain “qualified” items purchased for exclusive use inside the enterprise zone. Individuals can claim a tax credit for sales & use tax paid or incurred on the first $1,000,000 of “qualified” equipment or parts purchased each year. Corporations can claim sales or use tax credits on up to $20 million of “qualified” equipment or parts purchased each year. Business may carry forward unused tax credits and apply them to offset tax liabilities in future years. Oftentimes, businesses miss the potential for recovering these retroactive tax credits.

Many enterprise zone businesses forfeit these valuable tax credits year after year, simply because they are unaware of them. Local businesses should not assume that their CPAs are taking full advantage of the hiring tax credit. Since, the enterprise zone hiring tax credit is perhaps the most under utilized tax incentive offered by the state of California. Stockton businesses should contact their CPA firms to find out if they are eligible for the California Enterprise Zone hiring tax credit and sales tax credit. The hiring tax credit can amount to as much as $35,100 per qualified employee over a five-year period. The tax savings could be very substantial. These tax credits have retroactive provisions and any unused tax credits can carry forward until exhausted.

Stockton businesses may wish to contact an outside consulting firm that specializes in recovering California Enterprise Zone tax credits. Most offer free consultations and work on a contingency fee basis. They also administer the entire recovery process for hiring tax credit, calculate the tax credits, and prepare reports detailing the tax credits recovered. If you are too busy to recover the tax credits, it is not too late!

To schedule a free consultation, contact Sidney Singleton, COO, Wincentive Corporation  408-835-3936 or visit www.wincentivecorp.com

For more information, please contact Frank Ferral at fferral@stocktonchamber.org.