Guidance for expiring zones

By CMTA Staff

Capitol Update, Oct. 20, 2006 Share this on FacebookTweet thisEmail this to a friend

The Department of Housing and Community Development (HCD), within the Business, Transportation and Housing Agency, has issued a memorandum with clear guidance for the 15 Enterprise Zones that expired on October 14, 2006.

Although many Enterprise Zones may reapply and receive a new designation, they may experience a gap between the expiration of their original designation and the start of the new one.  In addition, there may be zones that do not receive a new designation or elect not to reapply.  The purpose of this memorandum is to provide recommended procedures for the administration of the voucher program under these circumstances.

Tax Benefits Remain In Effect

Hiring Tax Credit.  Revenue and Taxation Code Section 23622.7(b)(1)(C) [or 17053.74(b)(1)(C), if applicable] governs the availability of tax benefits for qualified employees within an expiring Enterprise Zone.  Under the statute, qualified employees hired within the 60-month period prior to the zone expiration date continue to qualify for the credit after the zone expiration date as if the Enterprise Zone designation were still in existence and binding.  In other words, a business that obtains a voucher prior to the expiration date will continue to receive the tax credit for the qualified employee after the expiration date for the full five-year availability of the tax credit (assuming all other qualification criteria are satisfied).  Similarly, after the zone expiration date, a business within the enterprise zone may obtain a voucher for a qualified employee hired within the 60-month period prior to the zone expiration date.  Tax credits are not available for employees hired after the zone expiration date.

Sales or Use Tax Credit.  The sales or use tax credit is governed by the Franchise Tax Board (FTB).  HCD understands that the sales or use tax credit is allowed for qualified property purchased and placed in service on or before the expiration date, and that no credit may be claimed for property purchased after the Enterprise Zone’s designation expires.  For more specific information regarding this tax credit, contact the FTB and 2005 FTB 3805Z Booklet

Business Expense Deduction.  The business expense deduction is governed by the FTB.  HCD understands that to obtain the business expense deduction, qualified property must be purchased and placed in service before the date the Enterprise Zone designation expires.  For more specific information, contact the FTB.

Voucher Program Continuation

The Enterprise Zones that expire on October 14, 2006, may continue to process voucher applications after the expiration becomes effective.  As described above, only voucher applications for employees hired prior to the zone expiration date are eligible. 

Enterprise Zones that continue to issue vouchers should maintain their current procedures to process applications.  For example, they should document each approved voucher on Form HCD EZ1 and remit the applicable $10 fee to the State.  If an Enterprise Zone that is due to expire determines that it is unable to administer the voucher program after its expiration date, the Enterprise Zone should notify the Department. 

Impact of Current Legislation and Draft Regulations

Recently, the Governor signed AB 1550 (Juan Arambula, D-Fresno) that will affect the enterprise zones that re-applied for designation.  With this new law, if these enterprise zones receive a conditional designation letter from DHC, they may continue to offer all enterprise zone benefits for all business activity after October 14, 2006, until DHC makes a final designation or declines to re-designate the zone.  Because DHC does not plan to announce the conditionally-designated enterprise zones until October 27, 2006, the enterprise zones that expire October 14, 2006, will need to postpone the approval of any applications for employees hired after their expiration date until they learn whether their proposed enterprise zones received a conditional designation.  If the enterprise zone receives a conditional designation, it may process these voucher applications under the new law.

Also, as you may know, DHC has proposed regulations that address the administration of the vouchers during the post-expiration period.  If the proposed regulations become law, DHC will provide guidance on their implementation, if necessary.  However, until such notice, DHC recommends that the Enterprise Zones that are due to expire follow the procedures outlined in this memorandum.

If you would like more information on DHC’s expiration plans for the enterprise zones, please contact the following staff: Frank Luera, Interim Manager. at 916.327.2862, or Michelle Adams,  Enterprise Zone Representative, at 916.327.0579.


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