State and Federal Enterprise/Empowerment Zone tax breaks extended

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Federal Work Opportunity Tax Credits (WOTCs) now cover 18 - 39 year-old employees hired by businesses located in Renewal Communities, Empowerment Zones, and rural renewal counties under legislation passed recently in Congress. Prior to passage of the new legislation, part of H.R. 2206: U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, the credits applied only to 18 - 24 year olds. Many states have also extended their location-based Enterprise Zone tax benefits and added new credits or incentives to their programs, but in California only a small percentage of businesses located in zones are taking advantage of the tax breaks.

These vary in type and amount from state to state, California CPA reports, but common tax incentives in the e-zones include hiring credits, property tax breaks, sales and use tax credits, income tax credits, research and development credits, and investment tax credits. Businesses are usually required to locate in designated areas and hire local employees. Federal wage credits per qualified employee can range from $1,500 to $4,000 per year; state credits for qualified employees range from $500 to $10,000.

One business owner, Universal Framing CEO Jon Bromberg, who moved out of an Enterprise Zone in 2005 to the City of Santa Clara because he needed to expand, saved over $100,000 in state taxes on employee credits, and also saved on electric and water bills in his former location. But as of July, Santa Clara was designated an enterprise zone. "It's a tremendous bit of luck," Bromberg said in an interview with the San Fernamdo Valley Business Journal. "The benefit of the enterprise zone starting obviously has a large impact."

Armando Jamjian, a partner at Rivera & Jamjian LLP, CPA's, in Pasadena, California, says that fewer that 20 percent of qualified business are taking advantage of the credits. "They're not educated on the fact that there are credits out there, or they think they don't qualify for them," he said, according to the Business Journal. "They are skeptical they can get credits like these."

Jamjian's firm creates reports detailing the credits clients can take. Manufacturing firms will likely benefit the most from these credits he said in an article appearing in the Los Angeles Daily News.

"Enterprise zones have been around since 1986," said Jeani Brent, a tax consultant for PricewaterhouseCoopers, the Business Journal reports. "Many of these businesses had been in zones for 10, 15 years and had no knowledge of it, and then they get a tax consultant saying, 'We can find you hundreds of thousands, if not millions, and the government is going to give you the money.' The business owners are going, 'What? Are you crazy?'" In California, benefits can be obtained retroactively for four years.

Colorado's Office of Economic Development and International Trade lists ten tax credits for companies in enterprise zones that include:

  • A $500 job tax credit for each employee and an enhanced rural Enterprise Zone jobs credit of $2,000 per new job for new business facilities located in a designated enhanced rural enterprise zone.
  • Double job tax credit for agricultural processing.
  • A two-year $200 job tax credit for employer health insurance per employee.
  • Ten percent income tax credit for job training credit.

States' revenue department web sites can direct users to lists of credits and incentives as well as their documentation and filing requirements. An online address locator of current Empowerment Zones and Renewal communities can be found on the U.S. Department of Housing and Urban Development's (HUD) web site. Tax tips are also available on HUD's Web site.

Business owners and practitioners should use information contained in the public domain and census tract and census block date to prove addresses. But boundaries on the zones change and it can be difficult to get accurate information from public databases, according to an article in California CPA magazine.

Some federal Empowerment Zone program grants and state tax credits have been under scrutiny lately. A City audit of expenditures by the El Paso, Texas Empowerment Zone led to a recent review by HUD. The city has been asked by HUD to return $168,756 unless it can prove the expenditures were appropriate. The Zone, which received a $25,000,000 federal grant for revitalization projects, has failed to spend all of its money and will redefine its mission, the El Paso Times reports.

Last month New York State sent letters to 3,000 of the 10,000 companies taking advantage of the "Empire "Zones tax breaks warning that they could lose the benefits unless they could prove that they had created jobs and invested in areas as they had promised. The letters represented the first audit and enforcement effort in the twenty-year old program, according to The New York Times. Companies that received the letters included Wal-Mart Stores and Lowe's as well as small businesses like Zaro's Bake Shop and Jamaica Donuts in Queens.

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