For latest CA EZ Program legislative updates:

www.twitter.com/taxcredits_cpa

http://www.blakechristian.com/blog/

www.caez.org  (Please see second section and sign the EZ petition)

www.ezpolicyblog.com

Long Beach Business Journal Op-Ed

CA Enterprise Zone Program – Job Panacea or Budget Casualty

Blake Christian, CPA

February 2011

The California EZ program was initially adopted in 1986 and common to most of the other 42 state EZ programs can trace their roots back to Location-Based Incentive Credit programs (LBIC’s) first established in the aging villages throughout the U.K.    To encourage business owners to keep or move their businesses to these regions, various tax incentives were offered. 

The U.K. program was a smashing success and U.S legislators quickly adopted similar programs that encourage businesses to hire and train economically and physically/ mentally challenged individuals and move them from taxpayer funded entitlement programs to private payrolls. Today there are over 8,500 distinct tax zones throughout the U.S.                                                

The California EZ program began in 1986 and today applies to 43 zones throughout the state, and Long Beach’s current EZ current program benefits over 300 companies and over 7,000 employees annually.  Similar job creation and job retention results can be found throughout California and the U.S.

Despite being a big EZ proponent while Mayor of Oakland, Governor Brown in his second term has proposed to plug a portion of the $28 billion state deficit with savings from terminating the EZ program. Based on the most recent 2008 Franchise Tax Board (FTB) data, scrapping the EZ program would potentially save $291 Million ($274 Million in Hiring and Sales Tax Credits and $17 Million of benefits for Banks that make riskier loans to these inner city businesses).  This is only 29% of the $1 billion EZ program cost often quoted in the press.  The Business Deduction and Net Operating Loss (NOL) benefits are simply timing difference and do not reflect true revenue losses for the state.

The California EZ Program contains 5 different tax incentives:

1)        Employee Hiring Credit – To encourage job creation and retention, employers can earn a maximum credit for qualifying employees of $6 per hour. 

2)        Sales & Use Tax Credits – To encourage investment in new equipment, tax credits of 10% or more can be secured for certain assets used exclusively in the EZ.

3)        Asset Expensing and NOL Provisions – These provisions have limited application and simply accelerate deductions in certain years.

4)        Lender Net Interest Deduction – Lenders that make loans to certain distressed EZ’s are allowed to exclude from California taxable income the net interest income. 

5)        Employee-Level EZ Credit – Certain part-time workers who work in an EZ may claim a $525 tax credit.

The recent battle in Sacramento has revolved around competing EZ studies –  2008 Public Policy Institute of California (PPIC) study and the 2006 HCD (California Department of Housing and Community Development) study http://www.hcd.ca.gov/fa/cdbg/ez/HCD_Final_Report.pdf  and the 2010/2011 USC/Maryland studies https://msbfile03.usc.edu/digitalmeasures/cswenson/intellcont/EZ_JH%20oct_2010-1.doc. 

The PPIC study, as authored by Jed Kolko and David Neumark claims to have analyzed “every California business” from 2002 to 2007 , concluded that while “well run and well marketed EZ’s were effective in creating and retaining jobs”, most EZ’s did not.  The California Budget Report summarizes the the PPIC findings:  http://www.cbp.org/

The PPIC Study used jobs as the sole measure, and the major flaw in their analysis relates to their use of imprecise Dun & Bradstreet (D&B) job ranges, rather than securing specific year-to-year job figures.  D&B surveys ask employers to disclose employee numbers in general ranges such as 0 to 5, 6 to 10, 100 to 250, etc.; therefore, if  headcount rose from 3 to 5, or 100 to 120 (40% and 20% increases), no job growth would be reported using the D&B ranges. 

The competing 2006 HCD and 2010/2011 national and California studies were performed by USC and University of Maryland professors and used more detailed data, including 8,000 national  census tracts, as well as each of the census tracts in California containing an EZ.   The USC/Maryland studies measured and concluded the following for EZ communities:

-           Reduced unemployment rates by 3.1% (CA)/ 3.4% (Nat’l)

-           Reduced poverty rates by 8.6% (CA) /  26.1% (Nat’l)

-           Increased average wages and salary income by over $3,100 (CA)/ $2,700 (Nat’l)

-           Generally the programs did not “steal” businesses from one area of a state, but rather kept those businesses from fleeing the state.

To reconcile the main disputes between these studies, following are some key points: 

- The CBP states that over 90% of businesses utilizing the program are large businesses and they use $10 million of assets as the low end of “large”.   Using gross receipts as the proper measure shows that the number of companies claiming credits is relatively evenly dispersed across company sizes. More importantly, the vast majority of taxpayers are formed as closely-held “pass-through” entities such as LLC’s, S Corps and partnerships.  Not surprisingly, the number of personal returns (generally representing smaller businesses) claiming EZ benefits in 2007 was 14,317 while only 5,631 corporate returns  claimed EZ benefits.  This omission creates another critical distortion in the CBP’s analysis. The vast majority of EZ clients we review have less than 100 employees.

- One misunderstood aspect of the EZ program related to large companies concerns the tax “apportionment” rules which severely limit larger company’s ability to utilize the EZ credits.  As a simplified example, if Walmart operated 10% of their California stores in EZs, only 10% of the gross liability can generally be reduced from 8.84% by 10% to the extent EZ credits are available, resulting in a 7.56% tax rate – hardly a bargain compared to other states.

-The CBP Paper highlights that larger cities claim large annual tax breaks as compared to rural EZs.  Larger cities will virtually always produce larger credit amounts.

-  Assembly member V. Manual Perez has recently submitted AB 231 to fine-tune the TEA guidelines, including eliminating higher earning TEA residents from EZ qualification.  He has also submitted AB 232 which fine-tunes the overall EZ program approval and administration process.

With businesses and jobs fleeing to other lower cost, and business friendly, states at an accelerating rate, Governor Brown and the legislature will be wise to re-work and retain the EZ program, rather than scrap it.

These overlooked assets often come in the form of unclaimed tax refunds associated with various federal and state tax incentive programs.  These programs range from:

- Research & Development Credits

- Federal and State Hiring Credits

-Eco/”Green” Tax Credits

- Sales and Use Tax Credits and Exemptions

- Property Tax Refunds/ Exemptions

Current business owners, or buyer’s of these businesses, can obtain a significant economic advantage by documenting these refunds and working them into there business plan, exit strategy, or factor them into their acquisition strategy.

To read all the details, please click on the following link:

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2010/CorpTax/M_and_A_Transactions_Enhanced.jsp

For full access to all of my AICPA articles, please click here:

http://www.cpa2biz.com/search/results.jsp?N=79&mode=content

To obtain daily tax and economic updates, please follow me on Twitter @:

www.twitter.com/taxcredits_cpa

www.blakechristian.com

http://www.ft.com/cms/s/0/e2b1d566-75ba-11df-86c4-00144feabdc0.html

Press-Telegram (LB, CA) discusses quick charge breakthrough and political efforts for California infrastructure:

http://www.presstelegram.com/news/ci_15330285

With all the talk of shifting U.S. drivers to “cleaner” electric and other alternative fuel vehicles, we may still be a decade away from a significant shift to plug-in electrics. 

The added cost of electric vehicles and the need for local, regional and national infrastructure to get the driving public comfortable with the current “range axiety” that is a constant worry for drivers with normal battery driving range of 40-80 miles.

Other issues include standardizing the plug-in units and the length of time to fully charge the battery.  While technology is working on “quick-charge” processes, current charging times can be as long as 8 hours, which means the plug-in charging stations must be positioned must differently than gasoline stations.  For example – malls, business complexes, and in residential units.

The final issue being debated is whether the electric alternative significantly reduces the carbon footprint of electric car owners after factoring in the manufacturing process, replacement and disposal of dirty batteries, the continuing need for large and less-than-clean electric power plants, and the need to dispose of old cars and manufacture new ones.

Technology advancements are clearly being made….but time will tell…..

PowerPoint presentation is available in Media Library.

Please email me at: blakec@hcvt.com if the PowerPoint is not accessible.

Also check out my Twitter Page:  www.twitter.com/taxcredits_cpa for more eco-credit information and weekly tax and economic updates.

Going Green: Federal and State Eco-Credits and The Regulatory Landscape 

•  The Senate grilling of Goldman Sachs’ Executives (WSJ):

WSJ.com – Goldman Sachs Senate Hearings – Bruised/ Defiant. Do the Senators Really Understand What Market Makers Do? http://on.wsj.com/95hr1G

• Proposals to Revamp the U.S. Financial System (FT):

Martin Wolf (Financial Times) Evaluates U.S. Financial Reform Options http://www.ft.com/cms/s/0/cca02e40-522d-11df-8b09-00144feab49a.html

• The Press Spin to Put Lipstick on the Unemployment Pig: 

347 Regions Experience Higher Unemployment.But Press Spins the News as Positive   http://bit.ly/bXPwD6

• Going Green – The Wind Solution May Just Be Hot Air (WSJ):

WSJ.com – “Power Hungry” by Robert Bryce – The Wrong Way To Get to Green http://on.wsj.com/8ZIW2r

For all my Twitter Updates, please follow me at:

http://twitter.com/taxcredits_CPA

http://twitter.com/taxcredits_CPA

Media Links

To download, click on the hyperlink below and choose Save

 Blake E. Christian

Access all my CNN Local Videos: 

http://www.hcvt.com/resources-links/media-links.html

Available Topics (please click on link above):

Blake Christian CNN inverview – Local Eco Credits / Green Jobs [36.0 MB] February 2010

Blake Christian CNN interview – California Tax Overhaul Proposal [41.1 MB] October 2009

Interview – Pros and cons of a national sales/flat tax [lieu of current fed. tax system] [40.3 MB] September 2009

Blake Christian CNN interview – The U.S. Tax Gap [40.5 MB] September 2009

Blake Christian CNN interview – Swiss and U.S. at (Tax) War [40.6 MB] September 2009

Blake Christian CNN interview – $9 Billion of New California Taxes [40.5 MB] June 2009

Blake Christian CNN interview – POLB Middle Harbor Project [40.5 MB] May 2009

Blake Christian CNN interview – Tax Planning in a Recession [40.5 MB] May 2009

Blake Christian CNN interview – Enterprise Zone Credits “Green Jobs” [40.5 MB] April 2009

Blake Christian CNN interview – Affect of Budget & Stimulus on Business [40.4 MB] April 2009

Blake Christian CNN interview – Employee Free Choice Act [40.4 MB] April 2009

Check out the full library of  tax and economic articles @: www.blakechristian.com

We continue to see businesses and their CPAs overlook extremely valuable tax breaks, including:

- Federal and State Hiring Credits ($500 to $15,000 per employee)

http://www.blakechristian.com/hiring_tax_credits.html

http://www.blakechristian.com/california_tax_incentives.html

- Federal and State Eco/ Energy/ Green Credits (10% to 50%)

http://www.blakechristian.com/energy_tax_credits.html

- Use of Interest Charge DISCs for Export Sales

http://www.alliantgroup.com/_ag/index.cfm/our-services/export-incentives/interest-charge-domestic-international-sales-corporation-ic-disc1/

- Evaluation of Compensation Structure Options to Minimize After-Tax Cash Outflows.  This includes taking advantage of the lucrative and flexible qualified retirement plan rules.

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/CorpTax/Compensation.jsp

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2007/CorpTax/Services.jsp

- Re-Evaluating Legal Structure of Business Operations to Minimize Taxes

http://www.taxguideonline.com/hcvt/

There is still time to claim many of these tax benefits on your 2009 tax returns. 

www.blakechristian.com

For Daily Tax and Economic Updates, please follow me on Twitter:

http://twitter.com/taxcredits_CPA

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http://www.ft.com/cms/s/0/38154ea0-1cb2-11df-8d8e-00144feab49a.html

The UN has rolled out their latest (but not greatest) cap and trade plan.

The current plan is to penalizethose filthy cows, pigs, sheeep and other livestock and tax their owners based on the relative amount of methane gas they expel.    The UN will apparently use statistical averages rather than installing individual monitoring systems on each animal.

Intersting times…….

UN Climate Change Head Change

http://www.ft.com/cms/s/0/a481e00e-1c8e-11df-8456-00144feab49a.html

http://www.ft.com/cms/s/0/f612e228-1cbc-11df-8d8e-00144feab49a.html

 In a related development, the UN Climate Change Chief – Yvo de Boer has abruptly resigned his post and plans on heading up international accounting and consulting  firm KPMG’s environmental practice.  Mr. de Boer did not cite the aforementioned gas tax as a reason for his exit.

Eco/ Green Credits – 10% to 50% of Equipment Costs

President Obama spent a good portion of his State of the Union Speech focused on jobs and the economy.

 Throughout California – and across the U.S. – there are literally thousands of specified “tax zones” which allow employers hiring new employees to claim valuable federal and state hiring credits, as well as other tax and economic incentives.  In addition, certain state and federal programs such as the federal WOTC program and the California new jobs credit, which apply to businesses operating in any jurisdiction with the federal or state boundaries, respectively.

Click here for my latest AICPA hiring credit article, and please rate it at the end of the article:

 http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2010/CorpTax/Jobs_Jobs.jsp

Obama’s proposed $5,000 per employee hiring credit – up to $500,000 per taxpayer:

http://thehill.com/blogs/blog-briefing-room/news/78661-obama-to-roll-out-jobs-tax-credit-proposal-friday

 For more information regarding the California general jobs credit and the CA Enterprise Zone Program, please click on the links below:

 http://www.ftb.ca.gov/businesses/New_Jobs_Credit.shtml   $3,000 CA Jobs Tax Credit

http://www.hcvt.com/services/hiring-a-equipment-credits–ez-studies-.html  EZ Hiring & Equipment Credits

 For information regarding the 10% to 50% Federal and State Energy and Pollution Control Credits:

 http://www.blakechristian.com/green_tax_incentives.html

 Please do not hesitate to contact me with any questions or comments.

 For ongoing tax and economic updates, please follow me on Twitter: http://twitter.com/TaxCredits_CPA

 (562) 590-9535 x1800 – Telephone

(562) 216-1803 – Fax

Blakec@hcvt.com

www.hcvt.com