California's Enterprise Zone Act was promulgated "to stimulate business and industrial growth in the depressed areas of the state by relaxing regulatory controls that impede private investment" and to create a "strong, combined, and business-friendly incentive program to help attract business and industry to the state, to help retain and expand existing state business and industry, and to create increased job opportunities for all Californians." Two of the incentives provided to businesses operating within enterprise zones are the enterprise zone (EZ) hiring credits and the EZ sales and use tax credits. In broad terms, those EZ credits provide taxpayers with credit against their franchise tax liability as a result of some sales taxes and wages paid in EZs.
For a number of years the California Franchise Tax Board has sought, through litigating positions and administrative pronouncements, to limit the ability of taxpayers to take advantage of the EZ tax credits. That gradual chipping away at the availability of those credits appears to have come to a head this year with administrative proposals to dramatically alter the EZ credit program and legislative proposals to eliminate portions of the program or modify it entirely. Because the continuing viability of California's EZ credit program is unclear, taxpayers should take advantage of the credits while they can, continue to monitor legislative and administrative developments on the program, and adjust accordingly.
Originally published in State Tax Notes on June 17, 2013.
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