Potential Changes to Regulations Governing California Enterprise Zone Credits

Joe M. Albero — Tax Services
Dana Ingols — Tax Services

California businesses located at qualified addresses in an Enterprise Zone (EZ) are eligible for program benefits which include several state and local incentives. These incentives can generate significant tax credits. However, the state may be making changes to the regulations governing the EZ credits which could adversely affect eligibility.

There are currently 42 Enterprise Zones located throughout California, each administered locally. If businesses have multiple offices located throughout California, it is possible that any one of the offices will qualify. For specifics regarding the geography for the California Enterprise Zones please check here.

Some of the credits and incentives included in this program are:

  • Hiring credits of up to $37,440 over 5 years for each qualifying employee
  • Sales tax credits for corporations on purchases of $20 million per year of qualified machinery and machinery parts

The California EZ credits can be quite powerful since they have an unlimited carryover period.

Under present regulations, taxpayers can file amended tax returns for prior years in order to claim the EZ credits. However, as California examines its options to generate additional revenue there have been discussions in the legislature about limiting a taxpayer’s ability to file amended returns to claim these credits. Another potential change would be to limit the geography of the zoning for the program.

While no one can predict for certain what will happen in the state legislature, if your business qualifies for a California Enterprise Zone credit a window of opportunity may be closing. Please contact Dana Ingols or Joe Albero with our Corporate Tax Services practice if you would like more information or you determine you want to pursue these credits.

Any tax advice in this communication is not intended or written by Frank, Rimerman + Co. LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this communication, Frank, Rimerman + Co. LLP is not rendering any specific advice to the reader.