The Lindsay Enterprise Zone

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How would your business like to use thousands of dollars from tax savings and incentive programs to reinvest into your company and your employees? In 1997 Lindsay businesses took advantage of over 6 million dollars in enterprise zone savings. The Lindsay Enterprise Zone Program offers existing and new businesses a variety of tax and other incentives which can reduce the cost of doing business and increase revenues.

Any business located within the city limits of Lindsay is eligible for these exciting tax savings and incentive programs. Enterprise zones have been carefully located throughout the State in communities, like Lindsay, that are pro-business. To ensure a long-term relationship between business and local government, the City of Lindsay has made commitments to expedite permit processing, reduce construction and permit-related fees, and provide assistance in employee hiring and training while offering a number of state tax credits to Lindsay businesses.

Take a look at some of these great State tax credits:

  • Hiring Credit...up to $26,894 per employee
  • Sales Tax Credit...up to $1.2 million on machinery and parts purchased
  • Up front expensing of depreciable property
  • Tax-free interest income for lenders
  • 100% net operating loss carryovers

Hiring Tax credit: A qualified business may reduce tax by the amount of wages paid to one or more qualified employees.

  • 50% of qualified wages in year 1
  • 40% of qualified wages in year 2
  • 30% of qualified wages in year 3
  • 20% of qualified wages in year 4
  • 10% of qualified wages in year 5

Qualified wages are wages paid up to 150 percent of minimum wage. As of March 1, 1998, the maximum hourly wage on which this credit may be based is $8.62. Qualified employees are those employees: residing in Lindsay's targeted employment area (approximately 95% of City); receiving subsidized employment, training, or services under the terms of federal Job Training Partnership Act (JTPA); registered in any welfare to work program; displaced by other area businesses or long-term unemployed.

At least 90 percent of the qualified employee's work must be directly related to a business activity located in the Zone and 50 percent of the employee's work must be performed within the Zone boundaries. The credit must be reduced by any federal or state targeted jobs tax credit claimed.

Example: A Zone business hired 15 new employees, of which 10 meet the definition of "qualified" employee. These ten employees earn $8.62/hour and work 40 hours a week for 52 weeks a year; the tax credit for each employee is 50 percent of the first year wages or 8,964.80; the total first year tax credit for the ten employees would be $89,648.00; the total five year tax credit for each employee would be $26,894.40; the total five year tax credit for the 10 employees would be $268,944.00.

Simply stated, a business hiring 10 qualified employees for a five year period would be eligible for over a quarter of a million dollars in state tax credits over a five year period, monies that can be used to reinvest in your business.

Sales & Use Tax Credit:  The credit is equal to the amount of the sales/use tax paid or incurred for the purchase of qualified property. The combined purchase price of the property, in any year, cannot exceed $1,000,000 for individuals or $20,000,000 for corporations.

Qualified property is defined as machinery and machinery parts used to manufacture, process, combine or otherwise fabricate a product; produce renewable energy resources; control air or water pollution. The property must be used exclusively within the boundaries of an enterprise zone. Excess credit may be carried over to future years until it is used up.

Example: A Zone business purchases $10,000,000 in new machinery to set up a new production line for its operation. The business has a tax liability of $150,000. The credit earned is 6 percent of $10,000,000 or $600,000. Since the tax liability is only $50,000, the credit is $150,000 for that tax year. The $450,000 in unused credits may be carried over to future years until it is used up.

Note: If this business were a sole proprietorship or a partnership, the amount of purchase upon which the credit may be claimed would be limited to $1,000,000 and the credit to $60,000.

Net Interest Deduction: Interest earned on investments in a trade or business located in an enterprise zone is free from California tax.

Qualified investments include business loans, mortgages, and commitments of venture capital. The investment must be made in a trade or business located solely within an enterprise zone. The money loaned or invested must be used strictly for business activities within the enterprise zone, and the lender or investor must not have any equity or other ownership interest in the trade or business.

The full amount of interest, less any allowable expenses incurred in making the investment, is deductible from income if each of these provisions apply.

Example: A small business borrows $50,000 at 15 percent interest from a bank for marketing and equipment. The bank may deduct the interest income. A small business borrows $100,000 at 15 percent interest to renovate a building in an enterprise zone from family of the owners. The lenders may deduct the interest income.

Net Operating Loss Carry-Over: Net operating losses (NOLs) of individuals or corporations doing business in an enterprise zone may be carried over to future years to reduce the amount of taxable enterprise zone income for those years.

A net operating loss is defined as a loss attributable to the taxpayer's business activities within the enterprise zone as defined in the year of loss. The carryover may extend up to 15 years or the period of time the area remains designated as a enterprise zone. The loss can be applied only to income earned in the enterprise zone, and the loss occurs strictly from business activity in the enterprise zone. The credit may not be applied to tax years prior to the year in which the loss occurred (no "carrybacks"). Part-year residents of California must prorate the credit.

Example: A company opens a new headquarters in the enterprise zone. In the first year of operation the company incurs a major loss leading to a large net operating loss. The portion of the loss attributable to the enterprise zone business, based on formula apportionment, may be carried over to succeeding taxable years where a net operating income is earned for up to 15 years after the loss, until the deduction taken is fully offset by net operating income. The income against which the loss carryover may be applied is determined by an apportionment formula based on the percentage of sales, payroll and property of the company located within the enterprise zone.

Business Expense Deduction: Part of the cost of certain property purchased for exclusive use in an Enterprise Zone may be deducted as a business expense in the first year it is placed in service. The amount of deduction is as follows:

  • Tax years 1996 and 1997: $5,000
  • Tax years 1998 and 1999: $7,500
  • Tax years 2000 and forward: $10,000

Qualified property is defined as tangible, personal property (not real estate) which is used for business purposes and is eligible for depreciation; this includes most equipment, furnishings, and vehicles purchased for exclusive use in an enterprise zone, but not office supplies or other small items which are not normal depreciated.

Example: A taxpayer purchases machinery for use in the enterprise zone at cost of $7,500 and places it in operation in 1998. The deduction for the first year would be the full $7,500.

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Commonly Asked Questions About the Lindsay Enterprise Zone

Do I have to be a new Lindsay Business to take advantage of the Zone benefits?
No. Any existing or new business can take advantage of Zone benefits as long as the business is located within the city limits.

How long does the enterprise zone program last?
Fifteen years from the date of State designation which will be October 6, 2010.

Is the hiring tax credit/vouchering process complicated?
 Absolutely not! The state voucher is a one-page form that can be completed in minutes.

What is a TEA?
 Lindsay has been designated a targeted employment area(TEA) so approximately 95% of the residents automatically qualify for a hiring tax credit. If you hire a Lindsay resident, you will most likely qualify for this tremendous state tax credit.

If my business cannot use all the credits I earn this year, can I use the remaining credits against next year's taxable income?
 Yes. You may carry over the sales and use tax credits indefinitely, and the hiring credits for 15 years, contingent upon your business remaining within the Zone boundaries.

Can I receive a voucher for a part-time or seasonal employee?
Yes.

What items qualify for the sales and use tax credit?
 Items which qualify include machinery (and replacement parts) used in manufacture, assembly or production of goods, which is purchased and delivered to the Zone location. It also includes machinery that is used to process and cook, as well as air and water pollution-control devices associated with a manufacturing operation.

What is the advantage of the net operating loss carryover incentive?
Being in the Lindsay Enterprise Zone allows an employer to carry forth 100% of net operating loss to future years rather than the 50% allowed for employers outside of the Zone. This is of particular advantage to new start-up companies.

Are there other benefits to the Lindsay Enterprise Zone?
 Yes! These include but are not limited to a business loan program, permit streamlining, fee deferrals and rebates, purchasing power from other Lindsay businesses and training workshops.

If I think I have a new employee that qualifies for the hiring tax credit or have a general question about the Enterprise Zone, whom do I contact?
Adriana Andrade, Community Development Department at (559) 562-7117

Enterprise Zone coordinator for the City of Lindsay is, Scot B. Townsend.

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What are Lindsay businesses saying about the Enterprise Zone?

Dan Smith, Chief Financial Officer, SmithCare, Inc. and Lindsay Gardens
"The City of Lindsay Enterprise Zone has virtually eliminated our state income taxes for the foreseeable future. This allows us to invest more in the success of our business and, most importantly, provides additional resources to provide an even higher level of care in our facility. We are excited about the opportunities provided by the Enterprise Zone and the short and long-term benefits it will provide to the residents of Lindsay."

Art Serna, Owner, Art's Custom Cabinets
"The Enterprise Zone's benefits have allowed us to hire more people, allowing us to expand our operations. The zone has given us added flexibility with our company's resources."

Greg Smith, President/General Manager, Lulu Packing
"Although we have been a long-time Lindsay employer, the Enterprise Zone has greatly increased our operational efficiency, creating new and exciting opportunities for our company by making it possible to expand our business."

Terry Henson, Manager, Burger King
"It's a great opportunity not only for local businesses but for the community to bond together in realizing its economic goals."

Bob Babcock, President, National Diversified Sales
"The Enterprise Zone is the single most distinguishing feature that separates Lindsay from other manufacturing sites in the valley. By using the enterprise zone intelligently, NDS has effectively 'zeroed out' its State tax liability. For California manufacturers, this is a tremendous competitive advantage."