Sales and Use Tax Credit
Hiring Tax Credit Business Expense Deduction Net Operating Loss Carryover Net Interest Deduction for Lenders Employee Wage Credit
There are six basic tax incentives associated with the Enterprise Zone:
Your Company May Be Eligible for Thousands of Dollars in Benefits!
Sales and Use Tax Credit:
In any year, individuals may claim a credit equal to the sales or use of tax paid or incurred to purchase the first $1 million of qualified machinery costs. Therefore, if your company spends $50,000 to purchase eligible equipment, you would be eligible for a credit of $3,875 (the amount of your sales tax), against your state business income tax on zone income. These credits do not apply to real estate purchases. In some instances, tax credits can be carried over.
A qualified employee who works 2,080 hours during the year (full-time equivalent) and earns $12.00 per hour (for a total salary of $24,960) would earn your company a credit of $12,480 ($24,960 x 50%) against your state business income tax on zone income in their first year of employment. In subsequent years, credits are reduced by 10% annually over a five-year period. This credit may be taken for up to five years for each employee, hired after the start of the Enteprise Zone, until the Zone expires.
The maximum hiring credit available is based on an hourly wage of $12.00 ( or 150% of the current minimum wage). If an employee earns more than $12.00 per hour, the employer must compute the credit using $12.00 as the hourly wage.
Full-time, part-time, temporary or seasonal employees all qualify if they are:
- A qualified dislocated worker
- Eligible to receive subsidized employment training or services under the terms of the Federal Job Training Partnership Act (JTPA/Workforce Investment Act (WIA).
- An economically disadvantaged person 14 years of age or older
- A disabled individual who has completed, is eligible for, or is enrolled in a state rehabilitation plan.
- An ex-offender
- A Native American
- A member of a targeted group as defined by the Federal Work Opportunity Tax Credit (WOTC)
- A qualified veteran
- A resident of a Targeted Employment Area (TEA) and hired after 9/23/97.
- Eligible recipient of various forms of public assistance such as: SSI, AFDC, Food Stamps or State/Local public assistance.
In addition, at least 90 percent of the employee’s work must be directly related to a trade or business activity located in the Enterprise Zone and at least 50 percent of the employee’s work must be performed inside the boundaries of the Enterprise Zone.
Retroactive Vouchering and Tax Refunds:
Employees hired in prior years may still be vouchered if found to be qualified (with proper documentation). Refunds for state income taxes paid in prior years may be obtained by filing amended returns. Companies should consult with their tax professional for more information.
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Business Expense Deductions:
Businesses conducting a trade or business within the City of Fresno Enterprise Zone may elect to treat 40% of the cost of qualified property as a business expense in the first year it is placed in service. The amount of this deduction is limited to $20,000 ($50,000 x 40%). Qualified property includes, but is not limited to, tangible personal property (excluding buildings) acquired by purchase for exclusive use within the Enterprise Zone.
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Net Operating Loss Carryover:
Qualified taxpayers conducting business within the Enterprise Zone may elect to carry forward 100% of their NOL for a 15 year period (rather than 10 years).
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Net Interest Deduction for Lenders:
A bank or individual making a loan to a business whose sole activity takes place in the zone may deduct loan expenses incurred from income earned on the loan interest, plus take a deduction equivalent to the net interest produced by the loan. Eligible expenses include commissions paid to the loan representative, the cost of the money used to fund the loan and bad debt expenses. Employers may be able to leverage these benefits to achieve lower interest rates or loan fees.
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Employee Wage Credit:
A state income tax credit is available to qualified employees working in the Enterprise Zone. The credit is equal to 5% of an employee's earnings up to a maximum amount of $10,500 in earnings per year. For example, a single employee earning $20,000 is eligible for a $525 state income tax credit (formula: gross income of $10,500 x .05 = $525)
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Kelly Vaughan Trevino
Incentive Zone Manager
2600 Fresno St., Room 2156-02
Fresno, CA 93721