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The net operating losses of individuals or corporations doing business
in an enterprise zone may be carried over to future years to reduce the amount of taxable
zone income. The net operating loss or NOL is determined by computing the business loss
which results strictly from business activity in a zone.
Limitations
Enterprise Zone NOL carryovers are
allowed only for losses occurring in a year beginning after the date of designation
Financial institutions using bad debt
reserve methods may carry forward the zone NOL for only five years
The zone NOL may not be applied to
years prior to the year in which the zone NOL occurred (no carrybacks)
Part-year residents of California
must prorate the credit
The enterprise zone NOL deduction can only offset
business income attributable to operations within the zone boundaries. Businesses with
locations both within and outside of or in more than one enterprise zone must apportion
the total business loss of the corporation to the zone based on a special zone
apportionment percentage.
Example
A
business in the enterprise zone has a $10,000 net operating loss in its first year of
business as an exclusive result of enterprise zone activity. Because of the loss, no tax
is owed on the zone income. In year two, the business has a profit of $12,000. The
carryover from the first year in the amount of $10,000 may be used to reduce the taxable
enterprise zone income in year two.
Note: Unused
carryover losses may continue to be carried over as provided for
under current law for enterprise zones.
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