Hiring Credit

A business located in the San Bernardino Valley Enterprise Zone (SBVEZ) may reduce its state income tax by $37,440 per qualified employee hired after the designation date, over a five-year period. The credits may be carried over until they are exhausted.

Who Qualifies

A qualified employee is an employee who:

• Performs at least 50% of the work within the boundaries of the Enterprise Zone
• Was hired on or after the effective designation date and before the date of zone expiration
• Spends at least 90% of their work time directly related to the trade or business located within the Enterprise Zone

And in addition; a qualified employee must meet one of the following criteria at the time of hire:

• 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).

Vouchering Process

The County of San Bernardino is the Vouchering Agent for the SBVEZ.  A Hiring Tax Credit Voucher Certificate (VoucherCert 10-07) will be issued to a business for each qualified employee hired. This voucher certifies that the employee meets the eligibility requirements for a qualified individual, and substantiates a business’ claim to the hiring credit. 
To take advantage of the hiring credit, an Enterprise Zone Business must:

• Complete a Voucher Application & Voucher Certificate (VoucherCert 10-07)
• Provide documentation to demonstrate employee’s eligibility
• Submit $20.00 per application fee (check payable to the County of San Bernardino)

Forms and fees should be mailed to:
County of San Bernardino Economic Development Agency
Attn: Tim Shears
215 N. “D” Street, Suite 201
San Bernardino, CA 92415
If you have any further questions regarding the process, please call 909.387.4700.

Hiring Credit Sample Calculation

EZ businesses may reduce their state income tax based on a percentage of the wages paid to each qualified employee.  The following sample credit calculation is based on a qualified employee that works 40 hours per week* (2080 annual hours) at $12.00** per hour; therefore earning $24,960 in annual wages.  Over the next five years, the employee could generate up to $37,440 or more in Hiring Credit.                              

*Over-time hours can be included and may result in hiring credit being over $37,440.

**In the calculation of the credit, the employee’s hourly rate is used, up to maximum 150% of the minimum wage.  Presently $12.00 per hour ($8 minimum wage x 150%) is the cap rate imposed for the computation of the credit. 

**For taxable years beginning in 2008 or 2009, taxpayers with net business income of $500,000 or more are limited to 50%
of the allowable credit.

Sales and Use Tax Credit

California income tax may be reduced by the amount of sales or use tax paid on qualified property purchased and placed in service after the EZ receives its designation and before the EZ designation expires.  The business must use the property exclusively within the boundaries of the EZ.      
Qualified property includes machinery and machinery parts used to: 

• Manufacture, process, fabricate, or otherwise assemble a product. 
• Produce renewable energy resources.
• Control air or water pollution. 

In addition, qualified property can also be:

• Data processing and communications equipment (computers, CAD systems, copy machines, telephone systems and faxes). 
• Motion picture manufacturing equipment central to production and post production, including but not limited to, cameras, audio recorders, and digital image and sound processing equipment. 

The sales tax paid or incurred on qualified property being purchased using a financial (conditional sales) contract qualifies for the sales or use tax credit. 

Individuals, estates, trusts, and partnerships may claim an annual credit equal to the sales or use tax paid or incurred to purchase up to $1 million of qualified property.  Corporations may claim an annual credit equal to the sales or use tax paid or incurred to purchase $20 million of qualified property. 

Example: If you spend $150,000 to purchase machinery used for manufacturing and pay sales tax of $12,000 (based on 8% sales tax).  EZ businesses may reduce the amount of your tax imposed on Enterprise Zone income by up to $12,000.

**For taxable years beginning in 2008 or 2009, taxpayers with net business income of $500,000 or more are limited to 50%
of the allowable credit.

Net Operating Loss Carryover

For taxable years beginning on or after January 1, 2004, 100% of the Net Operating Loss (NOL) for Enterprise Zone businesses may be carried forward for 15 years, but may not be carried back.  An EZ NOL deduction can only offset business income attributable to operations within the EZ.  Taxpayers must elect and designate the carryover category on the original return of the year of a loss, and file form FTB 3805Z for each year in which an NOL deduction is being taken.  The election is irrevocable.  (Suspended for tax years 2008-2009)

Business Expense Deduction

EZ businesses may elect to treat 40% of the eligible cost of qualified property as a business expense rather than a capital expense.  For the year the property is place in service, the business may deduct the eligible cost in the current year rather than depreciate it over several years.  The maximum aggregate cost of the qualified property against which the 40% deduction may be claimed in any taxable year is determined by the number of taxable years that have elapsed since the EZ received its final designation. 
The maximum aggregate cost is:

            
Example: If you purchase racks that cost $30,000. You can depreciate the racks over a 10-year period using the straight-line method. Using the Enterprise Zone Business Expense Deduction you may claim $12,000 ($30,000 x 40%) as a first year business expense. Your new depreciable base will be $18,000 ($30,000-$12,000), and you may claim $2,000 of normal depreciation for each of the next 9 years, ($18,000 ÷ 9 years = $2,000).

Net Interest Deductions for Lenders

For taxpayers (lending institutions, individuals, etc.) investing in an EZ business, a deduction from income is allowed for the amount of net interest received from loans made to a trade or business located solely within an EZ.  Types of loans that qualify for this deduction include business loans, mortgages, and loans from noncommercial sources.  The following requirements must be met to qualify for the deduction:

• Use the loan strictly for the borrower’s business activities within the EZ.
• The lender does not have equity or other ownership interest in the borrower’s trade of business. 
• Borrower must continue business activities in the EZ.
• Payment must be received before the EZ expires.

Example: If you loan $5,000 to an Enterprise Zone Business that meets the requirements listed above and you earn $500 of interest and incur $250 of expenses directly related to the loan, you may deduct $250 ($500 - $250) of net interest from your taxable income.

State Contract Preference  

A company located in the Enterprise Zone (EZ) may be awarded up to 5% preference on bids with the State of California. A business may also receive 1% - 4% additional preference based on the number of qualified EZ employees hired to complete the contract. Bidders seeking to obtain the state contract preference must submit a completed STD Form 831 to the contracting agency with or prior to their bid submittal.

EZ preferences are limited to 9% or a maximum of $50,000 per bid.  In combination with any other preferences, the maximum limit is 15% of the lowest responsible bid; and, in no case more than $100,000 per bid.  Bidders must certify, under penalty of perjury, to perform 50% of the labor hours required to complete a contract for GOODS or 90% of the labor hours required to complete a contract for SERVICES in an eligible Enterprise Zone worksite(s).

EZ preferences do not apply to contracts where the work site is fixed by contract terms.

These preferences only apply to bidders who are California based firms, and only when the lowest responsible bid and resulting contract exceeds $100,000.