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California Tax Incentives

California tax incentives offer corporate tax credits, other corporate tax incentives, as well as personal-level tax breaks.

California’s reputation as the "Golden State" has lost much of its luster over the past few years as a result of ongoing fiscal challenges, stiff regulations, faltering education system and escalating tax burdens.

Despite having a high profile Governor who has consistently called for terminating the anti-business elements in the corporate and personal tax structure and revising our arcane regulatory provisions and budget process, actions by our Democratic controlled legislature in early 2009 has resulted in California’s tax rates rising to the highest levels in the country.

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Despite being in the middle of the worst economic downturn in a century, at present, California income tax rates can easily exceed 10 percent for higher income taxpayers. In addition, sales tax rates have recently been increased up to 10.25% in some cities. While legislators believe that California’s temperate climate and demographic make-up is enough to offset most of the state’s onerous tax and regulatory climate, in the “new economy” of virtual businesses which can operate virtually anywhere in the world, this is simply not the case.

Valuable, yet Underutilized, California Tax Incentives

There is a silver lining in California however – in the form of valuable, yet underutilized, California tax incentives, which are unknown to the vast majority of taxpayers and their CPAs. These incentives come in the form of California Enterprise Zone tax credits, which offer corporate tax credits, other corporate tax incentives, as well as personal-level tax breaks for operating in any one of the 42 California Enterprise Zones throughout the state.

A California enterprise zone tax credit are personal and corporate tax incentives that come in the form of hiring tax credits of up to $12,500 per “qualified” employees working in an Enterprise Zone, Employees eligible to generate these employer tax incentives include: those recently laid off, veterans, economically or physically challenged. Native American Indians, American Samoans, and Pacific Islanders. Generally 15% to 50% of an employer’s worker base will be eligible for these tax credit incentives – depending on the industry. Since these credits can be secured for up to four prior years via amended returns, typically we find hiring and sales tax credits of at least $200,000 per small to mid-sized employers.

While the Enterprise Zone hiring credit is typically the most significant California tax incentive, the Enterprise Zone sales tax credit can reduce the after-tax cost of capital expenditures by up to 10%. The sales tax corporate tax incentive applies to a broad range of assets including: air and water pollution and energy control equipment, manufacturing and processing equipment, R &D and other assets. These annual incentive credits can total $100,000 for S Corps, LLCs and Partnerships and over $200,000 for C Corps.

These California tax incentives can dramatically reduce the high tax burden on California businesses and make them more competitive with other states and countries which likely have lower tax rates and less regulation. 41 other states have state-level corporate tax incentive tax programs, and virtually every state also has various federal tax credit incentives – including federal tax credit programs ranging from $1,500 to $8,500 per employee.

These California tax incentives not only benefit the businesses operating in the Zone, but studies show that the employees and communities are positively impacted by these state and federal tax credit incentive programs. California tax incentives are also available for both lenders and employees to further stimulate the economy. The WOTC California tax credit depends on the employee demographic of businesses.

Finally, the California and national unemployment rates being at decades high levels can benefit from these California tax credits and other corporate tax incentives to help those unemployed workers get a new job. Businesses are properly incented to hire these candidates since virtually all of these state and federal hiring credit incentive programs generate credits for employers hiring veterans, and those who have become unemployed.

Therefore, by becoming familiar with the California tax credit incentives and other state and federal programs, businesses and employees can do well while doing good and put themselves in a more competitive position as they navigate through this ongoing challenging economic period.


California Tax incentives come in the form of California Enterprise Zone tax credits, which offer corporate tax credits, other corporate tax incentives, as well as personal-level tax breaks for operating in any one of the 42 California Enterprise Zones throughout the state.

Check whether your business is in the CA EZ or any of the 8,500 Zones in the U.S

Blake Christian, CPA/ MBT is a Tax Partner in the Long Beach office of HCVT, LLP CPAs, Co-Founder of National Tax Credit Group, LLC, and is a member of the Cal Chamber Tax Committee, as well as numerous other boards and organizations. He can be reached at (562) 216-1800 or blakec@hcvt.com.

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