Understanding tax law changes for California businesses

On July 13, 2013, Assembly Bill 93 and Senate Bill 90 began to phase out the more than 25-year-old enterprise zone tax incentive program. All tax incentives for the Geographically Targeted Economic Development Areas, including enterprise zones, were repealed and three new incentives were created, now applicable as of January 1, 2014.

Here are a few insights on the three new tax incentives:

1) New Employment Credit (NEC). This credit is applicable over the next seven calendar years. It:

• Is not available for retailers, food service, temporary employment agencies, casinos, bars or sexually oriented businesses.
• Allows businesses to claim hiring credits in certain economic development areas as well as in designated census tracts with high unemployment and poverty rates.
• Is available for hiring employees who are long-term unemployed; unemployed veterans; ex-felons; or recipients of the federal earned income tax credit, CalWORKs or general assistance.
• Is available only to employers that create net new jobs statewide.

Takeaway? The new hiring credit may require significant documentation. Consider technology solutions for identifying hires and tracking Point of Hire credits efficiently.

2) Sales Tax Exemption. This new partial sales and use tax exemption is good for purchases over the next eight fiscal years. It:

• Provides a statewide sales tax exemption for a portion of the state sales and use tax on up to $200 million of certain manufacturing and research and development equipment
• Is available to manufacturers NAICS codes 3111 to 3399 and also certain biotechnology, physical, engineering and life sciences companies conducting research and development
• Is not available to certain financial institutions, agricultural and extractive taxpayers
• Applies to purchases made on or after July 1, 2014, and sunsets on July 1, 2022.

Takeaway? Consider expected purchases and whether they may qualify for the partial exemption based upon the new eligibility criteria.

3) California Competes Tax Credit. Also known as the GO-Biz credit, this is administered by the Governor’s Office of Business and Economic Development which will:

• Negotiate agreements to provide tax credits related to certain investments and employment expansion in California. Available funds for 2013-2014 are $30 million and escalate from there through 2017-2018.

Takeaway? Negotiate tax credits based on job creation and investments in California, which can create additional opportunity.

For more detail and insight on the changes to the enterprise zone credit program, visit CA.gov.