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Changes to 2006 Form

Updates to 2006 FTB 3805Z Booklet

Revision Date: 12/19/2007

Revision Details: Our current instructions instruct the taxpayer to add the amount of sale or use tax credit into income, which results in an incorrect amount of tax liability. This revision will allow the taxpayer to report the correct amount of income, which results in a correct amount of tax liability. R&TC Sections 17053.70 and 23612.2 allows a credit against the tax for the taxable year an amount equal to the sales or use tax paid or incurred during the taxable year by the taxpayer in connection with the taxpayer's purchase of qualified property. Taxpayer means a taxpayer engaged in a trade or business within an enterprise zone. Also, any taxpayer that elects to claim this credit cannot increase the depreciable basis of the property as required by IRC Section 164(a) with respects to sales or use tax paid or incurred in connection with the purchase of qualified property. However, the law does not provide for adding the entire amount of credit back into income. This sentence was placed under the Sale and Use Tax Section in error and should only be under the Hiring Credit Section.

  • This update is located on Page 8, 1st column, Instructions for Worksheet II, Line 2, column (c)

It should read:

For partnerships, enter the amount from line 2, column (c ), on form FTB 3805Z, current year sales or use tax credit amount on Forms 565 and 568, Schedule K, line 14 and the distributive share of the credit to partners and members on Schedule K-1 line 14.

The revised form is available for download.


2006 Updates to Form 3805Z Booklet

Revision Date: 04/04/2007

Revision Details: Since some of the enterprise zones areas were expired in December 2006 and some of the enterprise zones areas were conditionally designated, we need to add new procedure to keep the taxpayer informed in regard to this issue. Our instructions currently use the incorrect name for one of the enterprise zone designations; therefore, we are revising the instructions with the correct name.

Page 2 and 10, 2006 FTB 3805Z Booklet and pages, 599 and 607 of the Package X.

  • Page 2, column 2, under List of 2006 Conditionally Designated Zones:

It should read:

Northern Sacramento

  • Page 2, column 3, after Expiring Zones section, new paragraphs:

It should read:

Filing of Form FTB 3805Z

Taxpayers that operate at a business located in an expired zone and in a conditionally designated zone, file one form FTB 3805Z for the expired zone and another form FTB 3805Z for the conditionally designated zone, to claim the enterprise zone (EZ) credits. The credit from an expired zone can only offset against the tax on the business income in the expired zone. The credit from a conditionally designated zone can only offset against the tax on the business income in the conditionally designated zone. The amount of EZ credit is limited by the amount of tax (line 6a of form FTB 3805Z) from each EZ business income. But the total amount of credits from all EZs should not exceed the net tax liability (line 6b of form FTB 3805Z).

For an expired zone, use form FTB 3805Z to report the enterprise zone credit generated in this zone and to report the carryover amounts of the credit and net operating loss incentives. For a conditionally designated zone, use form FTB 3805Z to report the enterprise zone credit generated in this zone and to report the carryover amounts from this zone.

Net Interest Deduction

When the taxpayer (creditor) negotiated a qualified loan with a debtor during the existence of a designated enterprise zone and that zone has now expired, the debtor must continue to operate within an enterprise zone to qualify the creditor for the net interest deduction. For more information, see Part III, Net Interest Deduction for Lenders, on page 10 of this booklet.

  • Page 10, Column 2 under Part III, Net Interest Deduction for Lenders Section, new paragraphs:

It should read:

Expired Zone:When the taxpayer (creditor) negotiated a qualified loan with a debtor during the existence of a designated enterprise zone and that zone has now expired, the debtor must continue to operate within an enterprise zone to qualify the creditor for the net interest deduction.

Example 1: ABC Corp was engaged in a trade or business in an enterprise zone that is now expired. During the existence of the previous enterprise zone, ABC Corp obtained a loan from Bank of Funds that qualified Bank of Funds to take the net interest deduction. ABC Corp no longer operates a trade or business in an enterprise zone once the previous zone expires. As ABC Corp no longer operates in an enterprise zone, Bank of Funds no longer qualifies to take the net interest deduction on this loan.

Example 2: ABC Corp was engaged in a trade or business in an enterprise zone that is now expired, but also operates in a new enterprise zone that recently received a conditional designation. During the existence of the previous enterprise zone, ABC Corp obtained a loan from Bank of Funds that qualified Bank of Funds to take the net interest deduction. As ABC Corp continues to operate a trade or business in an enterprise zone, Bank of Funds continues to qualify to take the net interest deduction on this loan.

This revision does not have any impact on tax liability.
The revised internet version is available for download.


2006 Updates to Form 3805Z Booklet

Revision Date: 01/18/07

Revision Details: Enterprise Zone Deduction and Credit Summary Instructions

  • This revision updates the Los Angeles Region's information to be consistent with how Housing and Community Development will present their information on Page 2, second column, table titled "Los Angeles Region".

It should read:

Los Angeles
East Valley, Hollywood, Central L.A.

This revision does have tax impact. This revision is printed products 2006 FTB 3805Z Booklet, page 2 and 2006 Package X, page 599.

The revised internet version is available for download.

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