Chat with an FTB Representative

Tax News
Eight new enterprise zones

Possible boost to California’s economy

Governor Arnold Schwarzenegger recently announced the conditional designation for eight Enterprise Zones statewide. The zones are East Los Angeles, Kings County, Oakland, Salinas Valley, San Joaquin County, Santa Ana, Siskiyou County, and West Sacramento.

The new designations will take the place of the eight zones set out in statute that are expiring over the next several months. Each zone designation is in effect for 15 years.

In his announcement, the Governor noted, "Enterprise Zones play a key role in revitalizing economically challenged parts of our state. By helping businesses create well-paying jobs, we empower communities to climb the economic ladder and build the state's overall economy."

The California Enterprise Zone Program targets economically distressed areas using special state and local incentives to promote business investment and job creation. By encouraging entrepreneurship and employer growth, the program’s objective is to create and sustain economic expansion in California communities.

Businesses within Enterprise Zones are eligible for substantial tax credits and benefits.

For example:

  • Firms can earn $37,440 in state tax credits for each qualified employee hired.
  • Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts.
  • Certain depreciable property can be expensed up front.
  • Lenders to zone businesses may receive a net interest deduction.
  • Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment.
  • Enterprise Zone companies can earn preference points on state contracts.
  • Up to 100 percent of Net Operating Loss (NOL) carry-forward. NOL may be carried forward 15 years.

In 2006, a report commissioned by the Department of Housing and Community Development (HCD) evaluated the success of Enterprise Zones in spurring economic recovery. The report showed that, on average, within Enterprise Zones between 1990-2000:

  • Poverty rates declined 7.35 percent more than the rest of the state.
  • Unemployment rates declined 1.2 percent more than the rest of the state.
  • Household incomes increased 7.1 percent more than the rest of the state.
  • Wage and salary income increased 3.5 percent more than the rest of the state.

In the next step in the designation process, the HCD will issue a conditional designation letter to each of the new zones, outlining conditions that must be met before final designation can be granted. Examples of conditions include a signed memorandum of understanding with HCD, which includes performance measures and benchmarks.

For more information on Enterprise Zone tax incentive program, including the Enterprise Zone credit, see the November 2007 Tax News article "EZ does it."