Title: Identifying and Taking Advantage of LocationBased Tax Incentives
1Identifying 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
2Foreword 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
3Major 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
4Part 1 Federal Location Based Hiring Credits
(All States)
5All States Have Some Federal and State Credits.
Many have both!
- In Which State do you practice?
6(No Transcript)
7 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
8Empowerment 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
9FEDERAL ZONES (CONTINUED)
10FEDERAL ZONES--CONTINUED
11Renewal 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
12Native 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
13GO 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)
14Employee retention credit for employers affected
by Hurricanes Katrina, Rita, Wilma
15Part 2 WOTC Updates
Extensions and Clarifications
16WOTC Updates
- WOTC extended to 2011
- Automatic Qualification for Residents of 481
Rural Renewal Counties
17Part 3 State Enterprise Zones
- How much are you leaving on the table?
18(No Transcript)
19All States Have Some Federal and State Credits.
Many have both!
- In Which State do you practice?
20State 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
21Part 4 2006-2007 UPDATES STATE ENTERPRISE
ZONES
22Other 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
23Tier-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)
24California 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.
25Old (pre-1/8/07) Long Beach Zone (44)
26New (1/8/07) Long Beach Zone (71)
27 Net Change in CA Zones (24) -
Expired Area
Old EZ Area
New EZ Area
28Part 5 Focus on California
4 Years Amended Return Potential
29CA Enterprise Zone Incentives
- EZ Hiring Credit - 10,000 per yr
- Sales and Use Tax Credit up to 8.75
- Net Interest Deduction for Lenders
30CA 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
31CA 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.
32CA 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
33(No Transcript)
34(No Transcript)
35Part 6 Tools For Location Based Credits
Whats Available?
36Option 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?
37- 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
38California 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
39Option 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
40Option3 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)
41NTCG 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.
42Batch Analysis Sample Summary
43Batch Analysis Sample Output
44Consultants 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
45And 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
46Contact Information
- NTCG 1.800.791.3589
- Chuck Swenson cswenson_at_ntcgtax.com