Post on 14-Jan-2016
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Identifying and Taking Advantage of Location-Based Tax Incentives
Charles Swenson, PhD, CPAProfessor and Leventhal Research Fellow, University of Southern California
Co-Founder, National Tax Credit Group, LLCwww.NTCGtax.com
Foreword: Tax Incentives as Part of
Holistic Tax Planning
Very program/ state specific
Often difficult to locate current address databases
Perceived as immaterial or inapplicable
Overlooked by 90% of tax advisors
For those that claim the benefits:
- Reduced effective tax rates
- Refunds
- Competitive advantage - Lower cost of labor/ lower cost of capital outlays
- Enhanced reputation for your tax department
- Improved value of business and improved R.O.I. for equity holders
- Possible employee bonuses and improved CPA firm billings
Major Points to Remember
Wal Mart, Home Depot, Starbucks, Wells Fargo, Warren Buffet and other taxpayers executing “Best Practices” utilize many of these location based incentive programs – providing them a significant operating advantage
The average benefits documented are seldom less than $100,000 and can easily exceed $1,000,000 for larger companies
There is a high probability that you have locations or clients in one or more Zones. On average approximately 1 in 5 (20%) of locations in are in a federal or state Zone
This is a “blind spot” for most tax advisors, so there is a huge market opportunity over your competition
These credits are a PERMANENT TAX BENEFIT and are viewed by management and investors as quality earnings, and enterprise vale enhancements
Location Based Incentives is not Rocket Science, but can make you the Hero in your bosses’ or clients’ eyes
Part 1: Federal Location Based
Hiring Credits (All States)
All States Have Some Federal and State Credits. Many have
both!In Which State do you practice?
Federal Hiring Credits
Empowerment Zone Hiring Credit
Renewal Community Hiring Credit
Native American Hiring Credits
GO Zones
Note: Ok to document now and claim for three prior years
Empowerment Zone Hiring Credit
Credits claimed by employers – Form 8844
Employer locates in Emp. Zone and
Employee lives in Emp. Zone – Annual Test
Max credit = $3,000 per employee per year
There are hundreds of Empowerment Zones throughout the U.S.
First match business address, then match employees’ addresses
FEDERAL ZONES (CONTINUED)
FEDERAL ZONES--CONTINUED
Renewal Community Hiring Credit
Employment Credit
Employer locates in RC and
Employee lives in RC – Annual Test
Max Credit = $1,500 per employee per year
There are hundreds of Renewal Communities throughout the U.S.
First match business address, then match employees’ addresses
Native American Hiring Credit
Max credit is $4,000 per year for every qualified employee
Business must be located in a Tribal Land, employee must be some part (__%) Native American and live on or near Tribal Land. Native American businesses are plentiful throughout the U.S.
Tribal Lands are everywhere; 2/3 of Oklahoma is a Tribal Land area! Arizona, California and many other states have large Tribal Lands.
First match business address, then match employees’ addresses and Tribal membership card
GO ZONES—AMENDED RETURNS,
2006 RETURN ADDITIONS POSSIBLE
Tax Incentives to encourage rebuilding of the areas hardest hit by three separate 2005 hurricanes—50% bonus 1st year depreciation for acquisitions after
________—Partial expensing of demolition and cleanup costs—5-year-NOL carryback, —Increased rehabilitation tax credits - ___%—Boosted higher-education credits for those attending
school in the GO Zone – max $ _______—Eased casualty loss rules—Larger corporate charitable contribution limits for
donations to hurricane aid - ___% vs. 5%—Special employee retention credits (Automatic WOTC) -
$2,400 (expired August 28 2007)
Employee retention credit for employers affected by Hurricanes
Katrina, Rita, Wilma
Expired August 28, 2007
Part 2: WOTC Updates
Extensions and Clarifications
WOTC Updates
WOTC extended to 2011
Automatic Qualification for Residents of 481 Rural Renewal Counties
Part 3: State Enterprise
Zones
How much are you leaving on the table?
All States Have Some Federal and State Credits. Many have
both!In Which State do you practice?
State Enterprise Zones (EZs)
Located throughout the U.S.
Offer incentives for business to locate in a certain area
Create job opportunities
Stimulate growth and development in economically depressed areas
Benefit both the business and the community
Part 4: 2006-2007 UPDATES:
STATE ENTERPRISE ZONES
National Landscape?
Other State EZ Changes
Kentucky: EZs expired; KREDA Program added
North Carolina: Article 3J Program added
New York: new Empire Zones added
Florida: new EZs added; some boundary changes to existing zones; some EZs expired
California: 5 New Zones Added, Existing Zones Greatly Expanded
Tier-Based States
Arkansas, Georgia, Mississippi, North Carolina
Tiers change on January first of every year (Arkansas changes every June), based on economic status of related county
Tax incentives vary by county (tier)
California Changing Zones –Issues and Opportunities
California has over 126 distinct Enterprise Zone related databases containing “eligible” business and employee addresses, which contain error factors as high as 10%. Cities are slow in releasing data.
Each Zone maintains their own database and there is no consolidated database.
Street names (e.g. First vs. 1st, Martin Luther King vs. MLK, etc.) directionals (North, South, etc.) create additional errors when Zone Coordinators, taxpayers and consultants attempt to manually check addresses.
Old (pre-1/8/07) Long Beach Zone (44%)
New (1/8/07) Long Beach Zone (71%)
Net Change in CA Zones (24) -
Net Change in CA Zones (24) -
Extended AreaOld EZ Area
New EZ Area
Expired Area
Part 5: Focus on California
4 Years Amended Return Potential
CA Enterprise Zone Incentives
EZ Hiring Credit - $10,000+ per yr
Sales and Use Tax Credit – up to 8.75%
Net Interest Deduction for Lenders –
CA EZ - Hiring Credit
Employer must be located in an EZ
Credit can be claimed for up to 5 years
Unused credit carryovers
Each qualified employee = $35,000
Vouchering form example
CA EZ - Sales & Use Tax Credit
Any sales/use tax paid or incurred to purchase up to $1M of qualified property in an EZ is eligible for credit
C Corp. is eligible for up to $20M of qualified property. Flow-Thru’s - $1M.
CA EZ - Net Interest Deduction
for Lenders
Deduction to lenders for the amount of “net interest” earned on loans made to a business located in an EZ
Part 6: Tools For Location
Based Credits
What’s Available?
Option 1: Do It Yourself Without Tools
Secure Credits and Incentives Autonomously—Locate Tax Incentive Zones In Your Area—Research for Tax Credit Details and Information—Contact Appropriate Government Administrators for
Approvals—File Tax Returns OR Amend Returns
—Issues – Who within your company/ firm will handle the screening and documentation?
- Human Resources? - Accounting? - Tax Staff/ Audit Staff?
NTCG has developed the only national database of location-based federal and state incentive Zones. The total number of Zones exceeds over 7,500 distinct Zones and include:
State Enterprise Zone Programs (39 States) - $500 - $11,000 per employee
Federal Empowerment Zones (41 Nationally) (768 Census Tracts) - $3,000 per employee/ yr.
Federal Renewal Community (39 Nationally) (1114 Census Tracts) - $1,500 per employee/ yr.
Federal Indian Tribal Lands (4476 Nationally) - $4,000 per employee/ yr.
Federal Free Trade Zones (612 Nationally) – Deferred Custom Duty Payment
California Changes
The EZ Challenges
—42 CA Zones
—24 Recently Revised EZs
—24 Recently Revised or Pending TEAs
—Specific street ranges/ census tracts vs. zip codes or entire cities
—Different EZ and TEA boundaries and effective dates
—126 different databases for CA EZ/ TEA only
—Errors in public databases
—No consolidated database
Option 2: Hire Someone
Turn-key Solutions—Contact Firms Experienced in Securing Tax
Credits & Incentives NationallyBig 4 and Other National Accounting FirmsEmployment Screening FirmsNon-CPA FirmsADP/ Paychex – Hiring Credits only/ limited
states and limited testing
—Contact Local Boutique Firms Specializing in Regional Tax Credits & Incentives
Option3: Do It Yourself With Tools
Federal Zones: HUD Web-Based Lookup (www.hud.gov)—Some issues with 1990 versus 2000 census
tracts
—State EZs: go city by city searching for web-based software (e.g.,Santa Clarita, CA)
—Use NTCG Tax Zone Locator (TZL)
NTCG TZL’s Process/ Output
Easy to Use Input Screen
Web-Based, so accessible anywhere and constantly updated,
Concurrently identifies state, federal and TEA matches
State-of-the-Art address “clean-up” function when user misspells address, or enters non-existent address,
Fully documented output for audit trail, Zone/ California Franchise Tax Board (FTB) compliant, FAS 109/ FIN 48 support. DeLuxe case heard in 2006 confirmed that CA FTB has the right to audit “behind” the voucher and confirm that taxpayer’s employees meet one or more of the EZ “qualification” criteria. Therefore, thorough documentation process is key.
Batch Analysis Sample Summary
Batch Analysis Sample Output
Consultants: So What Are You Waiting For?
Create a lucrative niche for your practice
Avoid losing clients and getting sued!
Become a hero! Provide better service by helping your clients to claim what they are entitled to, and minimizing their tax liability
Acquire and retain more clients because of this expertise
And What About You, Company Tax Director?
Increase your company’s permanent earnings, lower its effective rate
Show your CFO your department can be a revenue center!
And credits are FAS 109/FIN 48
Friendly
Contact Information
NTCG 1.800.791.3589
Chuck Swenson: cswenson@ntcgtax.com