530/741-6463 or fax 530/742-7835
mhansen@syix.com

EZ TAX CREDITS CHANGE

If your business is located in the Yuba-Sutter Enterprise Zone, you may have additional tax credits just waiting for you to access. Recent changes in Enterprise Zone legislation are effective as of January 1, 1998, and therefore allowable for the 1998 tax year.

The passage of AB 2798 has provided new avenues for zone businesses to take advantage of increased tax savings as it relates to new technologies. The definition of qualified property under the sales and use tax credit has been expanded. Previously, the credit included as eligible purchases machinery or machinery parts used to manufacture, process, fabricate or otherwise assemble a product; produce renewable energy resources; or control air or water pollution. The new legislation expands the definition of qualified property to more accurately reflect the new types of manufacturing that occur within the motion picture and high technology industries. The law now allows purchases of data processing and communications equipment, such as computers, computer-automated drafting systems, copy machines, telephone systems, and faxes. Also added are motion picture manufacturing equipment central to production and post production, such as cameras, audio recorders, and digital image and sound processing equipment. The credit may not exceed the sales or use tax paid on the purchase of the first one million dollars of qualified property for individuals or twenty million dollars for corporations.

The EZ apportionment formula has been changed to be based on California income, property, and payroll instead of previously based on worldwide income, property, and payroll. Under previous law, the double-weighted sales factor had a significant effect of reducing the amount of tax credit a taxpayer could apply in a given tax year. The new law removes sales as a factor in this mathematical formula. The apportionment formula only affects those EZ businesses that operate both inside and outside the zone. California Schedule R, Apportionment and Allocation of Income, provides details of the factors and what amounts to use in the formula.

Important to the Yuba-Sutter Enterprise Zone is the legislative change that provides a means of an additional five-year extension of the first 19 zones designated. Because Yuba-Sutter was one of the first to be designated on October 15, 1986, zone status is scheduled to terminate in 2001. Once procedures are developed, Yuba-Sutter can petition the State Trade and Commerce Agency to have zone status extended to 2006. The Enterprise Zone Manager, Mary Hansen, has indicated that she does not expect any delays or problems in achieving the five-year extension. Zone extensions will be based on a satisfactory program audit.

In addition to providing a means to extend the life of the earlier zones, legislation was also put in place to de-designate zones based on their inability to fulfill the commitments made in their zone applications. Zones that are identified for de-designation will have a six-month period to correct the deficiencies. The legislation further establishes the number of California Enterprise Zones to 39, providing for re-designation of new zones as current zones expire. As zones mature or are de-designated, competitive application rounds will be held to maintain the legislated level.

And, if you are a zone business, be sure to look into how you can join more than 80 local businesses that have received over 2,047 State Hiring Credit vouchers that have the potential of saving these businesses over $54 million in tax liability. This credit applies to all EZ businesses, small and large alike, no matter what type of business service or product provided.

If you would like more information on the Yuba-Sutter Enterprise Zone program or need to know if your business in located in the zone, contact the Yuba-Sutter Economic Development Corporation at 751-8555 or Zone Administration at 741-6463. Detailed information on the zone program and tax credits can be found on the Zone=s website at www.yubasutterez.com.