California Incentives

Enterprise Zone Credits

Enterprise zones are specific areas in the community where the state & local government partner and offer a variety of incentives to attract private business investment.

There are 10 Enterprise Zone areas in Los Angeles County: Central LA, Mid-Alameda Corridor, NE San Fernando Valley, Eastside, Harbor, Pasadena, Long Beach, Lancaster-Palmdale, South Gate, Huntington Park

The Enterprise Zone Program spurs business development in designated communities through special zone incentives. Businesses located within the boundaries of an enterprise zone are eligible for tax credits against their California bank and corporation tax liability.

Sales and Use Tax Credit:

The first major enterprise zone tax credit is equivalent to the sales and use tax paid on the first $20 million of new or used manufacturing equipment purchased each year. Qualified machinery is the machinery or machinery parts used to:

Manufacture, process, fabricate, or otherwise assemble a product;
Produce renewable energy resources; or
Control air or water pollution

The definition of "qualified property" has been expanded to include data processing and communications equipment including, but not limited to, computers, CAD systems, copy machines, telephones systems, and faxes. Equipment must be purchased in California unless equipment of comparable price and quality cannot be found in California.

Hiring Tax Credit

Secondly, businesses may claim a percentage of the wages paid to a qualified employee as a tax credit. The credit is based on the lesser of the actually hourly wage or 150% of the state established minimum wage.

The credit is provided over a five year period with 50% of the wages creditable in the first year of employment, 40% the second year, 30% the third year, 20% the fourth year, and 10% the fifth year. If the employee were to stay with the company for the entire 5-year period, the company would receive credits totaling nearly $32,000 per qualified employee. If the employee is terminated prior to 270 days of employment the credit is recaptured.

Maps of Los Angeles County Enterprise Zones on the web:

Research and Development Tax Credit (R & D Tax Credit)

Designed to encourage companies to increase their basic research and development activities in California, the research and development tax credit allows companies to receive a 15% credit against their bank and corporation tax liability for qualified in-house research expenses, and a 24% credit for basic research payments to an outside organization. It must not include research for the purpose of improving a commercial product for style, taste, cosmetic or seasonal design factors.

Net Operation Loss Carryover:

California tax law allows business that experience a loss for the year to carry this loss forward to the next year in order t offset income in the following years. New businesses can carryover 100% of their losses for ten years if the loss is in their first year of operation, 100% over seven years if the loss is in their second year of operation, and 100% over six years if the loss is in their third year of operation. Existing California business can carryover 50% of their losses for five years.

Federal Empowerment Zone

Employer Wage Credit:
Federal tax credits of up to $3000 for hiring employees in the Empowerment Zone.

Benefits:
The Empowerment Zone employer wage credit provides an incentive to hire individuals who both live in the Empowerment Zone and work for an Empowerment Zone business.

The wage tax credit is 20% of the first $15,000 in wages paid to an individual who resides in the Empowerment Zone and works for an Empowerment Zone business, or up to $3,000 yearly, from 2000 to 2009.

Section 179 Deduction

Section 179 property deduction increases up to an additional $20,000 for Empowerment Zone businesses.

Benefits:
Section 179 Deduction allows businesses to deduct all or part of the cost of eligible property in the year the property is purchased and used. Businesses in an Empowerment Zone can increase their Section 179 deduction up to $20,000 on this qualifying property. This deduction is taken instead of taking depreciation deductions over a specific recovery period.

Eligibility:
Any depreciable property that is necessary for production of the business' income is eligible except inventory and real estate. Examples of qualifying depreciable property include; machinery, furniture, equipment, computers.

Manufacturer's Investment Tax Credit

Note: The MIC tax credit expired 12/31/03. You may reclaim credits for years 2000-2003).

6% State of California tax credit on all machinery and equipment used in the manufacturing process purchased after January 1, 1994 and before December 31, 2003. By statute, company may go back a maximum of four years (from the original due date of the return) to submit amended tax returns to claim any credit not captured in the year of purchase.

Foreign Trade Zones (FTZ)

Deferral, reduction or elimination of US Customs duties for importers and exporters. Foreign Trade Zones allow business to postpone customs payments on imported goods until the product is shipped out of the zone. Foreign trade zones are secured areas legally outside of U.S. customs territory usually located in or near customs points of entry.

Foreign trade zones allow entry of foreign or domestic merchandise without formal customs entry or government excise taxes. Merchandise entering a zone may be stored, tested, sampled, re-labeled, repackaged, displayed, repaired, manipulated, mixed, cleaned, assembled, manufactured, salvaged, destroyed or processed. Products exported from or imported into foreign trade zones are excluded from customs duty and excise taxes until the time of transfer from the foreign trade zone. From or imported into foreign trade zones are excluded from customs duty and excise taxes until the time of transfer from the foreign trade zone.

General Purpose Foreign Trade Zones in Los Angeles County:

Zone No. 50, Long Beach, California Grantee
Zone No. 191, Palmdale, California Grantee
Zone No. 202, Los Angeles, California Grantee
City of Industry's Foreign Trade Zone

World Trade Center Association

WTCA helps businesses with Trade Leads, Business Contacts, Market Assessments, Information on Economic Conditions by Country, Information on Government Regulations by Country and Trade Mission Assistance.

For more information about the WTCA, please visit our International Section.

New Market Tax Credits

The New Market Tax Credit (NMTC) Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39% of the cost of the investment and is claimed over a 7-year credit allowance period.

Joint Strike Fighter Income Tax Credits

The JSF is the next-generation air combat strike aircraft developed and produced under the JSF Program. The JSF Credits provide for a wage and a property credit under both the Personal Income Tax Law (PITL) and the Corporation Tax Law (CTL). These credits apply to qualified taxpayers under initial contract or subcontract to manufacture property for ultimate use in a JSF. The credits are available for taxable years beginning on or after January 1, 2001, and before January 1, 2006. Any excess credit can be carried forward for up to eight years from the year in which the credits are incurred. No credits are allowed unless the credit is reflected within the bid upon which the JSF contract or subcontract is based.