California Enterprise Zone Program Modified with New Incentive Programs - New Economic Development Tax Credits Available for Targeted Industries


Yesterday, Governor Brown signed into law AB 93, legislation that will institute two new tax exemption programs for manufacturing and bio-tech equipment, add a hiring credit for employment in specified geographic areas and provide for income tax credits through the Governor's Office of Business and Economic Development (GO-Biz) to attract new businesses to California.

This urgency bill goes into effect immediately and phases-out existing hiring credits over 10 years and ends certain tax provisions of the 30-year-old enterprise zone program, as of January 1, 2014. That program provided special incentives to encourage business investment and job creation in more than 40 economically distresses areas across California. The bill also ends the current New Jobs Credit tax incentive program. 

However, starting in 2014, the bill establishes a hiring credit under the Personal Income Tax (PIT) and Corporation Tax (CT) for employment in specified geographic areas and for new hiring of people who are long-term unemployed, earned-income tax credit recipients or military veterans.

The bill also establishes a Sales and Use Tax (SUT) exemption for manufacturing and bio-tech equipment. The SUT exemption would continue to be higher in current enterprise zones and designated census tract boundaries. The exemption would become operative throughout the state on July 1, 2014 and sunset on July 1, 2021.

AB 93 also establishes the California Competes Tax Credit Committee, which includes the state treasurer, the California finance director, the director of the Governor's Office of Business and Economic Development, and an appointee by the Assembly and the Senate. The amounts of California Competes tax credits available for GO-Biz are not to exceed $30 million (fiscal year 2013-14), $150 million (fiscal year 2014-15), and $200 million (each fiscal year 2015-19). Allocations will be based on the number of jobs created, the compensation paid to employees, amount of investment by the taxpayer in the state, and amount of unemployment in the area. The actual amount available is dependent on how much SUT credits and PIT and CT hiring credits are given out per year; and the total of all three is not to exceed $750 million. The bill sets aside 25 percent for certain small business. 

The changes to the state enterpise zone program would not affect various local versions of the program, which give companies that hire city residents in economically depressed neighborhoods exemptions from payroll expense taxes.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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