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New tax credits may benefit Lodi businesses

Credits are intended to replace enterprize zones, boost hiring and growth

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Posted: Wednesday, November 20, 2013 12:00 am

Lodi manufacturers and other businesses will be able to take advantage of two new state tax credit programs starting in July 2014 that are designed to foster economic development and job growth throughout California.

The tax credits — which include a sales and use tax exemption and a credit for hiring new employees — are designed to help replace the state’s enterprise zones, which will cease to exist at the end of the year. Lodi is in the San Joaquin County Enterprise Zone.

Lodi City Councilman Bob Johnson said that while he doesn’t have the expertise to judge whether the new tax incentives will be any more effective than the enterprise zones, he is glad to see the state making an effort to offer replacement programs.

“At least the state has taken steps to give us something, rather than just slamming the door in our face,” Johnson said. “We’ve got something to work with, and I’m grateful for that.”

Kish Rajan, director of the Governor’s Office of Business and Economic Development, and representatives from the state’s Board of Equalization and the state’s Franchise Tax Board explained the economic incentive programs at a roundtable in Lodi on Tuesday made up of representatives from 15 local manufacturing firms.

Rajan said the state decided to replace the economic development zones, the effectiveness of which was questionable, with the new tax credits because the Governor’s Office believes they will more directly spur growth. Gov. Jerry Brown signed legislation getting rid of the enterprise zones and creating the tax credits in July.

“It is all about creating better conditions, a richer and more flexible and dynamic set of tools and a climate in California that allows you all to succeed individually, that allows your region to grow so that in the aggregate, California’s growing,” Rajan told the business leaders.

The sales and use tax exemption is designed specifically for manufacturing and research and development equipment. Manufacturing firms and companies doing research and development in the biotech, engineering and physical sciences will be eligible for 4.18 percent sales tax exemption for machinery, software and computers to run equipment purchased between July 1, 2014, and Dec. 31, 2016.

From Jan. 1, 2017, through June 30, 2022, the sales tax exemption lowers to 3.93 percent. The sales and use tax exemption expires in 2022.

The new employment tax credit will offer income tax credits to companies that expand their workforce with jobs that pay more than 150 percent of the minimum wage, which currently would be $12 an hour, said Brenda Voet of the Franchise Tax Board. This credit is available to any employer except those engaged in temporary help services, retail, food services, casinos and sexually oriented businesses like strip clubs. Of those exempted from the credit, all except sexually oriented businesses can still get the tax break if they qualify as a small business, which for the purposes of the credit is having annual gross receipts less than $2 million.

Rajan told the group about a third program administered by his office, the California Competes tax credit. Through that program, the state has set aside $780 million dollars for flexible income tax credits for businesses that want to expand in California. Rajan said his office will negotiate the credits with companies that come to state officials with a plan, and noted that 25 percent of the money, or $195 million, is reserved exclusively for small businesses.

Rob Lechner, Lodi’s business development manager, said he asked Rajan to make the presentation to Lodi businesses after attending a similar presentation designed for local officials in September.

He said it will take some initiative on the part of local businesses, but if they are willing to do their homework and engage the state agencies through those agencies’ websites, they should reap benefits from the programs.

“What (the state) is offering for 2014 and beyond may not be the perfect answer to the enterprise zones, but it’s the next generation thereof,” Lechner said.

Navid Rezaei, who attended the meeting on behalf of Lodi-based Epic Plastics, said his company is currently operating 24 hours a day, five days a week and wants to increase operations to seven days a week. He said that takes more employees, which makes the employment tax credit perfect for the company.

He also said machinery used by the company to make plastic boards from recycled material for landscaping and other purposes can cost more than $100,000 to replace should a piece of equipment breakdown. He said that when a company is spending that kind of money, a sales tax credit goes a long way.

K.R. Hovatter, who owns Lodi-based Scientific Specialties Inc., said he’s not sure his company will benefit much from the programs, but he will try to take advantage of whatever tax incentives he can get.

“I’ll take advantage of anything they give me, because in my opinion I pay too much in taxes — but that’s my opinion,” he said.

Contact reporter Todd Allen Wilson at toddw@lodinews.com.

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1 comment:

  • Connie Rill posted at 4:40 pm on Fri, Nov 22, 2013.

    mezzo Posts: 5

    As a business retention and outreach specialist for the county, I have looked over this incentive very carefully. The new hiring tax credit is only for manufacturers that hire within a very narrow subset of new hires and only for a net increase in new hires...replacing an employee will not count. Only workers that meet the narrow subset, i.e., felony convictions, persons on government subsidies such as food stamps and veterans recently released within the last 12 months or persons unemployed for the past year, will qualify. The credit is for 35% of wages paid over $12 per hour. If you pay $12.50, the credit will be based on the 50 cents per hour at 35%, multiplied over the number of hours worked. For instance, if a person works 2,000 hours per year, using the above parameters, the credit could be $350 (It was $12,400 under the Enterprise Zone). A business has to reserve a potential new hire credit with the FTB within 90 days of hire by filling out a reservation. Unless a company is growing, hires a lot of persons within the narrow subset and all at excess of $12 an hour, there is no real financial benefit to this incentive.
    Manufacturers will get to keep the state sales tax portion for manufacturing equipment, however, they used to get a tax credit for the entire amount of taxes paid, so this is not a better incentive compared to the previous Enterprise Zone sales tax credit. The state tax portion is 4.19% -- and a company has to apply to the Board of Equalization to get a waiver so they do not pay this tax to their equipment vendor.
    Anyone that believes Go-Biz will be providing incentives for a company to move to Lodi versus the L.A. or S.F. area, can still hope that Go-Biz will bestow special incentives, but I wouldn't hold your breath. But Lodi should be proactive if it wants any incentives from the Go-Biz organization, by lobbying to become a Pilot project so that the $12 an hour minimum for hiring credits can be lowered to $10 minimum. That would help make the incentive more of an incentive.

     

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