Tax Talk Plus» Tax – State & Federal Hiring and Equipment Credits

California Enterprise Zone Program Effectiveness Being Evaluated on Flawed Data

admin — Mon, 14 Feb 2011 07:34:21 +0000

Governor Brown, certain legislators and the press appear to be blindly using flawed data backed by union interests. The following Op-Ed reconciles the difference between the various economic studies and supports the retention of the California EZ program.

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.

California Tax System is #2 (From the Bottom)

admin — Wed, 10 Nov 2010 00:09:36 +0000

A Race to The Bottom….

California’s business friendliness reached a new low in this year’s annual survey by the Tax Foundation. With a one-point drop to 49th place, California was beaten out by New York for the bottom spot.

As a result of the combination of: 1) 2010 California legislation which denies the use of Net Operating Loss carryovers in 2010 and 2011, as well as accelerating quarterly estimates and 2) California’s mid-term election results in bringing in many of the same “usual (tax-and-spend) suspects” at both the state and federal level, the Golden State is well positioned to drop to 50th place next year.

Read the in-depth comparison of business friendly and not-so-business friendly states to operate in:

http://www.taxfoundation.org/taxdata/topic/90.html

On the positive side, California continues to allow the use of the valuable Enterprise Zone and R&D tax credits. For more information, check out the library of articles at:

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

For post-election tax planning information and the impact of the potential expiration of the Bush Tax Cuts, please also check-out Video #4 at:

http://www.losangelesbtv.com/BlakeChristian.html

Off-Balance Sheet Assets Can Benefit Buyers and Sellers of Businesses

admin — Sat, 28 Aug 2010 19:45:18 +0000

Unlike Enron’s technique of hiding liabilities in shell entities, some business owners simply overlook valuable assets that can be secured with very little effort in most cases.

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

Federal Reserve Promotes California Hiring Tax Credit and Loan Programs

admin — Sat, 31 Jul 2010 23:03:34 +0000

Federal Reserve Board of San Francisco Promotes California Enterprise Zones.

Empowered Banking and the Federal Reserve Board recently sponsored a banking and business seminar to inform bankers, business owners and consultants about the power of the California Enterprise Zone in stimulating job creation, capital investment and bank loans.

To read how employers can secure hiring credits up to $37,000 per qualified employee, generate equipment credits ranging from 10% ot 30% and secure lower rate loans, please click on the PowerPoint link below:

http://www.empoweredbanking.com/2010/Events/FederalReserveEvent

To read more about the wide variety of state and federal hiring credit programs available for virtually any business, click on the article links below:

Accounting Today Hiring Credit Article:

http://www.webcpa.com/ato_issues/24_9/will-work-for-tax-breaks-54829-1.html

CCH Tax Figures Profile:

http://newsletters.cchgroup.com/node/265

For weekly tax and financial updates, please bookmark and follow me on:

www.blakechristian.com

www.twitter.com/taxcredits_cpa

Ongoing U.S. Economic Challenges May Cause Muni Bond Chaos

admin — Fri, 04 Jun 2010 16:52:42 +0000

Warren Buffet Turns Sour on Muni Bonds. Thanks to Massive Underfunded Pensions, Dwindling Revenues and Inability to Raise Taxes – State and Local Agencies Are in for a Rough Ride. Over $14 Billion of Muni Bond Defaults in 2008 and 2009. This may be just the tip of the iceberg.

http://www.moneynews.com/StreetTalk/warren-Buffett-Municipal-Debt/2010/06/03/id/360924?s=al&promo_code=A01D-1

U.S. Unemployment Continues to Challenge Recovery. Census Workers Cannot Cure the Problem (WSJ).

http://online.wsj.com/article/SB10001424052748704764404575286263535019280.html?mod=djemalertNEWS

Long-Term U.S. Problems Continue (The Economist) -

http://finance.yahoo.com/tech-ticker/%22longer-term-issues-for-america-are-really-really-serious%22-bishop-says-498808.html?tickers=%5Edji,%5Egspc,tlt,tbt,euo,man&sec=topStories&pos=9&asset=&ccode=

Eco-Tax Credit Webinar – Wed. June 16, 9:00-11:00 a.m. – Everything You Need to Know About Federal and State Tax Incentives

admin — Mon, 31 May 2010 16:37:54 +0000

http://www.cpelink.com/product/detail.php?p=1757

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

Date: Wednesday, June 16, 2010
Instructor: Blake Christian, Nancy Pfeffer

Begin Time:

9:00 am Pacific Time
10:00 am Mountain Time
11:00 am Central Time
12:00 pm Eastern Time

CPE Credit:

2 hours for CPAs

Who Should Attend
CPA/ practitioners and private industry accounting or tax personnel who are looking to establish a solid knowledge base of ways to reduce the after-tax cost of going green. These overlooked benefits can distinguish your CPA practice or your department’s contribution to the bottom line of the business owner.

Topics Covered

Federal and state environmental regulatory landscape

Tax credits available for truck and automobile fleets

Tax credits/ deductions available for alternate fueling stations

Tax credits available bio-mass, alternative fuel production, alternative energy, including solar, wind, co-generation, etc.

Impact of grants and credits on depreciable basis

LEED-certified building deductions

State incentive overview, including equipment credits and hiring credits

Grant opportunities

Case examples of incentive programs

Additional articles on this and other tax topics can be accessed at: www.lakechristian.com or www.twitter.com/taxcredits_cpa.

HIRE Act and Other Hiring Incentives. California Long-Term Unemployed Doubles. Tax Credit Programs Offer Workers and Employers Solid Incentives For Job Expansion.

admin — Mon, 31 May 2010 16:08:40 +0000

California Long-Term Unemployed doubles to 880,000 over the past year. Over 40% of the unemployed have been out of work over 27 weeks.

http://www.sacbee.com/2010/05/30/2786659/nearly-880000-californians-are.html#mi_rss=Top%20Stories

There are also a variety of state and federal tax credits available for employers who hire unemployed workers, including certain recent graduates, veterans and other economically disadvantaged employees:

http://www.accountingweb.com/topic/education-careers/unemployed-can-use-tax-laws-secure-job

Read how to maximize the immediate 6.2% Social Security tax holiday and the $1,000 hiring tax credit for hiring the unemployed. http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2010/CorpTax/HIREAct2010.jsp

For a full library of related articles, log onto: www.blakechristian.com or www.twitter.com/taxcredits_cpa.

Healthcare Tax Timeline – AICPA Corporate Taxation Insider Newsletter

admin — Thu, 29 Apr 2010 23:45:50 +0000

The following article details the various tax and penalty aspects (including effective dates for the multiple tax provisions) and health insurance mandates under the 2010 Patient Protection and Affordable Care Act (P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) [together the Healthcare Bill]:

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

For daily tax and financial updates, please follow me at:

http://twitter.com/taxcredits_CPA

Healthcare Costs, The Tax Police (IRS), And Congressional Pressure to Silence Critics.

admin — Tue, 30 Mar 2010 23:23:06 +0000

As companies large and small begin analyzing the impact of the recently enacted (2,400 page) healthcare bill, Congress is stirring up controversy with mixed signals to the business community on how the IRS will be enforcing compliance and putting pressure on large corporations who have announced negative earnings impact from the bill.

Read these interesting pieces form the Wall Street Journal:

The Tax Police – IRS’s Role in Monitoring Healthcare: http://online.wsj.com/article/SB10001424052702304370304575152181030785348.html?mod=WSJ_newsreel_opinion

Corporate Impact and Barney Frank’s Pressure:

http://online.wsj.com/article/SB10001424052748704100604575146002445136066.html?mod=WSJ_hp_mostpop_read

The following was recently posted by House Minority Leader John Boehner (R-Ohio) http://www.johnboehner.house.gov/blog/?postid=179018

http://gopleader.gov/News/DocumentSingle.aspx?DocumentID=178751

Silence! DemsTrying to Bully Employers on ObamaCare’s Job-Killing Impact

Posted by Press Office on March 30, 2010

Washington Democrats want the nation’s employers to think twice about alerting their workers, customers, shareholders, and the publicat large to the financial impact of President Obama’s new health care law, whether it’s AT&T ($1 billion), Deere & Co. ($150 million), Caterpillar ($100 million), 3M ($90 million), AK Steel ($31 milllion), and Valero Energy (up to $20 million.)

The White House blog has been used to question the credibility of these statements. A Cabinet secretary called these public disclosures “irresponsible.” House Energy and Commerce Committee Chairman Henry Waxman (D-CA) wants to hold hearings and issue subpoenas. These scare tactics are not surprising. Last fall, the Obama Administration issued a gag order designed to keep seniors in the dark about ObamaCare’s massive Medicare cuts.

America’s workers have a right to know how this new law will affect them. As do the millions of retirees who may lose their drug benefits. As do the customers who may have to pay higher prices to cover these losses. As do the small businesses who rely on these companies for telecommunications (AT&T), office supplies (3M), gasoline (Valero), and equipment (Caterpillar, John Deere)? These are the very valid questions House Republicans are discussing with their constituents this week while Democrats are attacking companies having a hard enough time trying to survive this recession without Washington getting in the way.

$493 Billion Healthcare Tax Hike Has Immediate Impact on Business Earnings

admin — Sat, 27 Mar 2010 20:18:10 +0000

AT&T is reporting a $1 BILLION earnings hit, John Deere reported $150 million impact and Caterpillar anticipates a $100 million decrease in earnings from higher premium, reduced tax deductions and various tax increases.

Read the Business Week Coverage of the AT&T Impact:

http://www.businessweek.com/news/2010-03-26/at-t-to-take-1-billion-charge-on-health-care-reform-update1-.html

Read the Marketwatch Summary on the full Industry Impact:

http://www.marketwatch.com/story/deere-says-health-reform-will-hit-its-bottom-line-2010-03-25?dist=afterbell

Obama Struggles in Polls and On the Public Relations Trail:

Read the Fox News transcript of President Obama’s challenges in selling the healthcare reform to skeptical Americans:

http://www.foxnews.com/story/0,2933,590007,00.html

Get the REAL facts from Accounting Web and the U.S. Chamber about how the healthcare bill will impact you and your business:

http://www.accountingweb.com/topic/tax/how-health-care-bill-will-impact-individuals-businesses

http://www.uschambersmallbusinessnation.com/take-action/myths-vs-facts—-its-time-to-get-the-facts-on-health-care-reform-straight

Senate Budget Report Provides Interesting Insights Into The Senate Bill:

http://budget.senate.gov/republican/pressarchive/2009/2009-11-19HealthCareFactSheet.pdf