Identifying and Taking Advantage of LocationBased Tax Incentives

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Identifying and Taking Advantage of
Location-Based Tax Incentives
Charles Swenson, PhD, CPAProfessor and Leventhal
Research Fellow, University of Southern
CaliforniaCo-Founder, National Tax Credit
Group, LLCwww.NTCGtax.com
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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

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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

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Part 1 Federal Location Based Hiring Credits
(All States)
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All States Have Some Federal and State Credits.
Many have both!

• In Which State do you practice?

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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

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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

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FEDERAL ZONES (CONTINUED)
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FEDERAL ZONES--CONTINUED
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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

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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

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GO ZONESAMENDED 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)

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Employee retention credit for employers affected
by Hurricanes Katrina, Rita, Wilma

• Expired August 28, 2007

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Part 2 WOTC Updates
Extensions and Clarifications
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WOTC Updates

• WOTC extended to 2011
• Automatic Qualification for Residents of 481
  Rural Renewal Counties

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Part 3 State Enterprise Zones

• How much are you leaving on the table?

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All States Have Some Federal and State Credits.
Many have both!

• In Which State do you practice?

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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

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Part 4 2006-2007 UPDATES STATE ENTERPRISE
ZONES

• National Landscape?

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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

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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)

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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.

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Old (pre-1/8/07) Long Beach Zone (44)
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New (1/8/07) Long Beach Zone (71)
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Net Change in CA Zones (24) -

Expired Area
Old EZ Area
New EZ Area
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Part 5 Focus on California
4 Years Amended Return Potential
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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

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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

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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-Thrus - 1M.

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CA EZ - Net Interest Deductionfor Lenders

• Deduction to lenders for the amount of net
  interest earned on loans made to a business
  located in an EZ

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Part 6 Tools For Location Based Credits
Whats Available?
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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?

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• 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

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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

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Option 2 Hire Someone

• Turn-key Solutions
• Contact Firms Experienced in Securing Tax Credits
  Incentives Nationally
• Big 4 and Other National Accounting Firms
• Employment Screening Firms
• Non-CPA Firms
• ADP/ Paychex Hiring Credits only/ limited
  states and limited testing
• Contact Local Boutique Firms Specializing in
  Regional Tax Credits Incentives

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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)

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NTCG TZLs 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 taxpayers
  employees meet one or more of the EZ
  qualification criteria. Therefore, thorough
  documentation process is key.

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Batch Analysis Sample Summary
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Batch Analysis Sample Output
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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

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And What About You, Company Tax Director?

• Increase your companys permanent earnings, lower
  its effective rate
• Show your CFO your department can be a revenue
  center!
• And credits are FAS 109/FIN 48
• Friendly

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Contact Information

• NTCG 1.800.791.3589
• Chuck Swenson cswenson_at_ntcgtax.com