Los Angeles revitalization zones.

• Author: Wenberg, Donna L.

Los Angeles Revitalization Zones were created as a result of legislation signed into California law in September 1992 (AB38X) to provide economic relief to businesses adversely affected by the April 1992 civil disturbances in the Los Angeles area. Legislation (AB18, passed May 28, 1993) modifies the original bill slightly. The measure provides special tax credits and deductions to stimulate business development in the affected areas. Cities in the Los Angeles area that suffered damage as a result of the civil unrest may submit applications for approval for areas in their jurisdiction to be designated as part of the Revitalization Zone.

Once approved, businesses within the areas may take advantage of the following incentives under AB18: (1) construction hiring credit; (2) general hiring credit; (3) sales and use tax credits; (4) business expense deduction for the purchase of qualified business property; (5) net interest deduction for lenders; and (6) net operating loss (NOL) carryover provisions. Generally, the incentives are available to offset taxable income, or the tax attributable to such income, generated within the Zone. Unused credits may be carried forward for 15 years. Incentives are effective May 1, 1992, and expire Dec. 1, 1998, except as noted.

Construction hiring credit

A qualified business may use the hiring credit to reduce tax based on the amount of "qualified wages" paid for construction work in the Zone. "Qualified wages" are wages paid for construction work in the Los Angeles Revitalization Zone to "qualified employees." "Qualified employees" are individuals who live within the Zone and who are hired to perform construction work within the Zone. The credit is based on 150% of the minimum wage base (equal to $6.37 per hour), and decreases over a 60-month period. The deduction for the qualifying wages must be reduced by any credit claimed. Recapture provisions apply if the employment is terminated by the taxpayer during specific time periods and under certain circumstances.

General hiring credit

Similar to the construction hiring credit, this credit is allowed on "qualified wages" (that portion of wages that does not exceed 150% of the minimum wage base) paid to "qualified disadvantaged individuals" (residents of the Los Angeles Revitalization Zone) who are "qualified employees." A "qualified employee" must meet both of the following tests: (1) at least 90% of his services must be directly related to the conduct of the trade...