Repeal of the California Enterprise Zone Tax Credit program.

• Author: Saine, Peter K.

On July 11, California Gov. Jerry Brown signed Assembly Bill 93 (A.B. 93), effectively eliminating the California Enterprise Zone (EZ) Tax Credit program and replacing it with a more limited hiring credit. Despite the negative impact of the EZ program's repeal, A.B. 93 also introduces numerous favorable sales/use tax exemptions that benefit manufacturers and biotechnology firms.

Demise of the California EZ Tax Credit Program

Under A.B. 93, effective Jan. 1, 2014, the EZ program will be replaced with a hiring credit with significant limitations (the New Hiring Credit), including stricter qualification requirements, such as:

* Demonstrating a net increase in new employees;

* Qualified wages must be between $12 and $28 per hour, which is between 150% and 350% of California's minimum wage; and

* Only full-time employees will be considered for the hiring credit, and they must qualify under one of the following four criteria:

* Unemployed/displaced worker;

* U.S. military veteran;

* Ex-offender; or

* Recipient of the federal earned income tax credit.

The new hiring credit can only be claimed on a timely filed, original return, and it is awarded competitively from a limited amount of funds each fiscal year set by the newly created California Competes Tax Credit Committee, which will be responsible for establishing limits on the aggregate amount of credits available to taxpayers. Businesses that want to claim these credits must request a "tentative credit reservation" with the Franchise Tax Board within .30 days of the employee's date of hire, and they must submit an annual "certification of employment" for each full-time employee to remain eligible for the credit during the 60-month credit period. The credit is available for businesses in designated census tracts or former enterprise zones only.

Businesses will also be subject to credit recapture upon the termination of a qualified employee within 36 months from the date of hire, absent a statutorily enumerated exception (e.g., voluntary separation of employee, disability, and terminations for cause, among other, less common scenarios).

Qualified employees hired on or before Dec. 31, 2013, for whom the businesses obtain the required credit vouchering, will continue to generate hiring credits under the existing rules. However, the carryover periods for the EZ hiring credits will be limited to 10 years, as opposed to indefinitely under the original rules.

The new law also eliminates the sales and...