California Ends EZ Program and Enacts New Credits and Incentives
(July 17, 2013)
On July 11, 2013, California Gov. Jerry Brown signed Assembly Bill (AB) 93, which effectively ends California’s Enterprise Zone (EZ) program. The new legislation substantially revises the current economic development area (EDA) credits and incentives, replacing them with a new hiring credit that can offset personal income tax and corporation franchise and income taxes. The bill also includes a new sales and use tax exemption for purchases of qualifying manufacturing and biotech equipment.
Income Tax Hiring Credit
A credit is available for qualified hires made between Jan. 1, 2014, and Dec. 31, 2020, for businesses in former EZ areas and in newly designated areas. The new credit is 35 percent of wages paid in excess of $12 per hour to qualifying employees for the first five years of employment, capped at $28 per hour. If an employee is paid more than $28 per hour, only the wages between $12 and $28 per hour are eligible for the credit. The amount of the credit is tied to California’s minimum wage, so the amounts will change as a result of future changes in the state’s minimum wage.
Sales and Use Tax Exemption
Beginning on July 1, 2014, qualifying businesses will have a new sales and use tax exemption for the state portion for certain purchases of qualifying property up to $200 million per taxpayer per calendar year. Qualifying property includes property that is primarily used in manufacturing, processing, refining, fabricating, or recycling tangible personal property, as well as property used in research and development activities. To qualify for the exemption, the business must be engaged in businesses described within North American Industry Classification System (NAICS) Codes 3111 through 3399, 541711, or 541712.
The existing EZ program expires on Dec. 31, 2013. Businesses still can generate hiring and sales and use tax credits until Dec. 31, 2013, and carry forward credits up to 10 succeeding taxable years. EZ businesses that will not qualify for the new sales and use tax exemptions should consider placing qualified assets in service prior to Dec. 31, 2013.
All employees for whom businesses have obtained an approved voucher certificate through Dec. 31, 2013, will continue to generate EZ credits for up to five years from the employee’s hire date. Any remaining credits generated prior to 2014 can continue to be carried forward up to 10 succeeding taxable years.
The net interest deduction available under the old EZ program will expire on Dec. 31, 2013.
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