What is an Enterprise Zone?
Enterprise Zones are established by the California Department of Housing and Community Development to encourage investment, stimulate growth and development, and create jobs in economically distressed areas. Enterprise Zone businesses operating within an Enterprise Zone may be eligible for EZ tax incentives.
How do I know if I am located in the San Bernardino Valley Enterprise Zone?
To verify whether your business is located within the SBVEZ, please visit www.SBVEZ.com or contact one of the participating jurisdictions.
City of San Bernardino, City of Colton, or the County of San Bernardino
What are the SBVEZ tax incentives?
There are 5 tax incentives available to taxpayers that invest in or operate a trade or business located within an Enterprise Zone. The incentives are:
- Hiring Tax Credit
- Sales or Use Tax Credit
- Business Expense Deductions
- Net Operating Loss Carryover (NOL)
- Net Interest Deduction
For information about each incentive above, refer to FTB Publication 3805Z.
How do I claim Enterprise Zone tax incentives?
Taxpayers may claim these incentives by completing form FTB 3805Z, and attaching to your California tax return. For those tax incentives that require an election, make the election on this form. The hiring credit, sales or use tax credit, and net interest deduction do not require an election, and can be claimed on either an original or an amended return. Make your election to claim the business expense and/or the NOL deduction on the original return. You cannot make the election on an amended return.
What employees may qualify for the hiring tax credit?
A business within the SBVEZ may claim credit on qualifying employees if hired on or after October 15, 2006 and before the SBVEZ expires on October 14, 2021; and, MUST meet one of the following conditions:
- A person receiving or eligible to receive subsidized employment, training or services funded by the federal Job Training Partnership Act (JTPA), or its successor, Workforce Investment Act (WIA) registered core or intensive services;
- A person eligible to be a voluntary or mandatory registrant under CalWORKS, formerly known as Greater Avenues for Independence (GAIN);
- A member of a targeted group defined in the federal Work Opportunity Tax Credit (WOTC);
- An economically disadvantaged individual 14 years of age or older;
- A qualified dislocated worker;
- A disabled individual eligible for, enrolled in, or who completed a state rehabilitation program;
- A Vietnam Veteran or veteran recently separated from military service;
- An ex-offender (felony and/or misdemeanor offense);
- A person eligible for, or a recipient of Public Assistance (TANF, SSI, Food Stamps);
- A Native American; Native Samoa, Native Hawaiian, or a member of another group of Native American descent;
- A resident of a Targeted Employment Area (TEA).
Additionally, at least 90% of the employee’s work must be directly related to a trade or business activity located in the Enterprise Zone, and at least 50% of the employee’s work must be performed inside the boundaries of an Enterprise Zone.
Can I take the sales or use tax credit if the property purchased was exempt from sales or use tax when purchased?
No. You can only take the sales or use tax credit for sales or use tax you actually paid or incurred on the purchase of qualified property.
Do leases qualify for the business expense deduction or the sales or use tax credit?
Yes. If you acquired the property through a leasing arrangement that constitutes a financial (conditional sales) contract, the property may qualify for the business expense deduction, or the sales or use tax credit, or both.
What type of loan qualifies a creditor for the net interest deduction?
Loans that may qualify for the net interest deduction include business loans and mortgage loans from commercial or noncommercial sources. To qualify, you must meet all of the following:
- The funds must be loaned after October 15, 2006, and before October 14, 2021
- The loan must be made to a trade or business located solely within an Enterprise Zone
- Loan proceeds must be used only for the trade or business activities within an Enterprise Zone
- The lender may not have any type of ownership interest in the borrower’s trade or business.
Is the net interest deduction allowed for the life of the loan?
No. The net interest deduction is only allowed as long as the borrower’s trade or business is located in an Enterprise Zone. Once the Enterprise Zone designation expires or the borrower moves out of the Enterprise Zone, the net interest deduction is no longer allowed.
What is the maximum amount of Enterprise Zone credits I can take in any one year?
The total of all Enterprise Zone credits that you can take in any taxable year may not exceed the lesser of the Enterprise Zone tax limitation, or the “net tax” limitation for individuals, or “tax” limitation for corporations. California Revenue and Taxation Code sections 17039 and 23036 define “net tax” and “tax”, respectively.
Is the carryover of the NOL deduction to future years limited?
Yes. You may carry an Enterprise Zone NOL forward for 15 years. The carryover deduction can only offset business income attributed to the Enterprise Zone. |