By Blake Christian
Blake Christian, CPA

It is clear that California businesses and individuals are faced with some of the highest marginal tax rates in the country – at 8.82% for most C Corporations and up to 10.3% for individuals making more than $1 million (note: an S Corporation owner can experience combined marginal rates of up to 11.8% for California purposes, when adding in the 1.5% California S Corporation level “toll tax”). These high taxes contribute to California’s relatively low rankings in “business friendly” surveys.

However, there is a silver lining for most Long Beach businesses and their equity owners (as well as certain lenders). Businesses can dramatically reduce their California income/franchise taxes by choosing to operate in the Long Beach Enterprise Zone (EZ), which comprises over 70% of the city and includes most of the commercial/ industrial sections of the city – including the port, Downtown Long Beach, The Airport, and most other sections of the city, except Belmont Shore/ 2nd Street.

Operating a business in a Long Beach EZ can provide the business owners with hiring credits up to $12,480 per year (pre-overtime) for each “qualified” employee as well as sales/ use tax credits on technology, manufacturing, processing, R&D and pollution control equipment used exclusively in an EZ.(Link)

Operating in Long Beach can make California a very attractive place to start a business of any size. For those businesses that have been in Long Beach for years, refunds for up to 4 years can be secured by documenting credits from the past 4 years.

The California EZ program was first adopted in the mid-1980’s to encourage businesses to locate in, and expand in, economically depressed areas of the city. The Long Beach EZ program was extended and expanded in the 2007 session and is generally available for up to 11 more years.

By establishing or expanding a business in one or more of California’s EZ’s, businesses (as well as equity owners of S Corporations, LLC’s and Partnerships) are eligible for the following tax benefits:

• Up to $12,480 of annual hiring tax credits for each economically disadvantaged or “at-risk” employee working in the EZ. Qualifying employees include residents living in certain low-income neighborhoods (Targeted Employment Areas), most veterans, previously unemployed or downsized, physically or mentally challenged, Native Americans, Samoans, and a variety of other workers,
• A sales/use tax credit for manufacturing (up to 10.75%), processing, technology, pollution control or energy conservation equipment used solely within an EZ,
• Favorable financing, grants and/or preferential bidding on government contracts, and
• Employee-level credits of up to $525 available to any employee working in an EZ with Adjusted Gross Income less than $16,334 (single) or $32,667 (joint).

For businesses making these socially responsible investments in EZ’s, the combined benefits can often reduce a taxpayer’s California tax liability to a small fraction of what taxpayers operating outside the EZ will pay. The net impact to the business includes lower labor/equipment costs, improved cash flow, additional funding to expand workforce and improve infrastructure, and higher business valuations.

In addition to the state EZ program, there are 40 other states with impactful incentive programs. Some states with attractive programs include: New York, Florida, Illinois, Georgia, Arkansas, Arizona and the Carolinas.

There are also thousands of federal programs available in the majority of states with a variety of LBIC’s, including: Empowerment Zones, Renewal Communities, Gulf Opportunity Zones and Indian Tribal Lands programs. These federal programs generate employer hiring credits ranging from $1,500 to $9,000 per year, for each “qualified” employee and are available in over 5,000 distinct regions throughout the U. S.

In 2009, Congress also liberalized eligibility for “dislocated youth” and veterans with physical or mental disabilities. Unlike most other LBIC programs, the WOTC (and Welfare-to-Work) program requires “certification” of the employees within 28 days of hire, but the credits are available to businesses operating in any geographic location.

So the next time you hear a business owner bashing the state or federal tax system, just tell them that effective tax planning can start with these three simple words: “Location, Location, Location” – and Long Beach is one of those great locations for tax minimization.

Blake Christian, CPA, MBT is a Tax Partner in the Long Beach Office of Holthouse, Carlin & Van Trigt LLP (www.hcvt.com) and Co-Founder of National Tax Credit Group, LLC.

You can reach Blake at 562-216-1800 or blakec@hcvt.com. Just email him your current or proposed business address and number of employees and he can let you know the amount of credits you can earn.