In the Zone: Enterprise Zone credits offer businesses tax breaks that make a difference.

• Author: Ballard, Gina
• Position: Location-based incentive credits

Location-based incentive credits (LBICs) offer many advantages, including current and prior year refund potential and favorable financial statement impact.

Yet, according to the Franchise Tax Board, only 3,199 companies claimed hiring credits in 2003 (the most recent statistics available), representing less than 10 percent of potential eligible businesses.

Familiarity with these benefits can significantly impact negotiations during a merger, sale or purchase of a business. For CPAs, staying abreast of these can be a valuable service to current and prospective clients.

STATE VS. FEDERAL

State and federal LBICs vary in amount and qualification requirements.

Common incentives include hiring credits; property tax breaks; sales and use tax credits; income tax credits or percentage reductions; research and development credits; and investment tax credits. Common qualification requirements are tied to both the employer's physical location and employees' residential address or various socio-economic factors.

Also, federal LBIC programs can provide wage credits per qualified employee ranging from $1,500 to $4,000 per year; state credits (available in California and 38 other states) range from $500 to $10,000 per qualified employee, per year.

Arizona, California, Colorado, Florida, Indiana, New York and Virginia do not require any pre-qualification procedures other than submitting certain employee documentation. In California, companies can receive up to $32,000 (over a 60-month employment period) in state hiring credits for each qualified employee hired and sales/use tax credits on qualified machinery and equipment purchased or leased.

The types of credits and amounts vary from state to state.

HOW IT WORKS: CA

California Enterprise Zone (EZ) programs offer substantial tax credits and deductions to businesses located within any of 42 EZ regions, representing roughly 12 percent of the state (www.hcd.ca.gov/fa/cdbg/ez/enterprise/#maps). Benefits can be obtained retroactively for up to four years, as well as for current and future years. Note, however, that certain zones will expire later this year and in 2007, absent legislative extension or re-application by the EZ cities.

Sample cities with EZs include Los Angeles, Long Beach, Santa Ana, Pasadena, San Francisco, Oakland, Sacramento, San Diego and Fresno.

Major benefits of the program include:

1. Interest Exclusion -- A full California tax exemption for financial institutions on net interest earned on...