ENTERPRIZE ZONES, KLINGONS AND VALCANS NEED NOT APPLY

Damn it Jim I’m a Real Estate Agent, not a star ship captain! Enterprise zones have nothing to do with tightly fitting yellow or red shirts and seductive green women.  Disappointing I know.  I personally feel crestfallen.  What these Enterprise zones do provide is a little ray of sunshine, and a substantial amount of money in your pocket, to support businesses in a state that is hell bent of making sure that all the those evil, greedy, capitalistic, polluting, wealth building (on the backs of the proletariat) companies leave this glorious workers paradise called the state of California.  On a side note, I’ve heard that new regulations at the state level will only allow people to inhale at work, exhaling produces the deadly greenhouse gas carbon dioxide!  Again I digress, so what are Enterprise zones.

Enterprise zones (“EZ”) are state sanctioned geographic locations that provide economic incentives for companies to locate and grow within a “disadvantaged” area.  Basically, it’s an incentive to get companies to move into and expand in certain areas.  The companies bring revitalization and create jobs, and in return the state will give you tax breaks.  The EZs are planned out and administered by the city they occupy.  There are standard benefits they offer as well as additional city specific.

So what are the standard benefits you ask… you didn’t ask?; I’m sure you were about to so let me pontificate.

• $37,440 Hiring credit per “Qualified” Employee over 5 years:   If you hire a new employee and they meet ONE of the 14 Criteria (click here for a list of the criteria).  You can claim a $7,488 per year per qualified employee in tax credits for 5 years.  State taxes only, the federal government does not feel that employing people is worth a tax credit.

• 100% Sales Tax Credit for purchasing “Qualified” (there’s that word again) machinery, parts, & depreciable equipment.  This can be office equipment, computers, servers, etc., or manufacturing equipment.  There is a lot of nuance to this section, It is worth a call to a tax firm like, The CPA office of Shady, Shady & Questionable, LLP to see what you can get away with.

• 100% of Net Operating Losses for a business in the EZ can be carried forward for up to 15 years:  So if you are losing money hand over fist in this current economic recession, fell good that after you have sold the business at fire sale pricing, the new owner can take the tax loss in the future.  Hey, maybe there is a whole business opportunity of selling these business losses to the bourgeois capitalists out there.

• Upfront expensing of certain depreciable property.  As a business owner you can expense the whole value of some assets in the year purchased.  No waiting for 5 or 7 years to depreciate assets.  Again talk to your accountant about what qualifies, if they don’t know, what the heck are you paying them for?

• No state taxes on interest income for loans made on to business in the EZ.  While banks almost never pass the saving on to the business with lower loan rates.  Loans from family, friends, and private money become more attractive to the lender.  Yes, it is another advantage to present to your relatives to fleece them out of more of their money.

Some cities also try to sweeten the pot to get you to come to their city and become a stalwart upstanding source of revenue.

For example The Los Angeles EZ offers the following benefits in a magnanimous gesture of good will, and hoping you don’t notice the higher tax basis for business.

• Reduced electric rates for 5 Years:  Yes the city can raise the rates willy nilly and then offer them to you at a discount.  But business that do locate to the L.A. EZ get the following discounts
  • Year 1: 35%
  • Year 2: 25%
  • Year 3: 20%
  • Year 4: 15%
  • Year 5: 10%

• Reduced parking requirements on any commercial projects.  Given that many properties are older and have substandard parking compared to the current code this is a really great benefit.  This can be especially relevant to restaurants, mfg, Office R&D, and retail spaces.   We see this most pronounced in retail, where the city in its infinite wisdom created parking requirements that older properties can’t meet.   So you get a great retail space where most tenants can’t get city approval to use.  Brilliant I know.

• Site plan review fee waiver for “SOME” commercial construction projects.  Well, with construction booming in Los Angeles… Okay, sorry had to stop laughing.  This will reduce the cost construction projects by a few thousand.  Hey a dollar saved is a dollar earned.

The bottom line is if you are moving it is worth checking to see if you are moving to an EZ.  The benefits when added up are substantial and it can help keep more of your hard earned money in your pocket and out of the hands of the People’s Republic of California.  I think most business owners fell that is a good thing.  If you don’t feel that way, you don’t need to apply for the benefits and can pay the state all that you want.

In either a magnanimous gesture to you all, or a self serving shameless plug, I have put together links and documents on my website for everything you want to know on Enterprise Zones.  I encourage you to take a look at the information and feel free to contact me with any questions.    CLICK HERE TO GO TO THE ENTERPRISE ZONE INFORMATION ON MY WEBSITE.

Best Wishes,

Chris

Chris@chrisla.com

Chris Barbieri is a commercial real estate broker specializing in the office, industrial and retail markets in Southern California.