Business owners are understandably confused by the multiplicity of tax-favored zones available out there in this great U.S. of A. Their confusion is aggravated by the similarity of the program names and the over-used acronyms representing those names. Perhaps even you have been confused? Or maybe you should have been but didn’t realize it!
The benefits offered by California’s Enterprise Zones are incredible — millions of dollars of incentives to hire and retain disadvantaged workers, to invest in manufacturing and other kinds of business equipment, and for banks to loan money to Enterprise Zone businesses. The CA Enterprise Zone statute even provides bid preferences for Enterprise Zone businesses competing for state-government procurement contracts.
Numerous other states have their own version of the state “enterprise zone” — and that is exactly what they call it, an enterprise zone. The State of New York, on the other hand, offers 82 “Empire Zones” with benefits both similar and dissimilar to those of California’s Enterprise Zones.
Both New York and California, and most other states, are also graced by federal tax-favored zones offering federal tax benefits. The most commonly recognized of these are the federal “Empowerment Zones.” Among other incentives, the Federal Empowerment Zones offer tax credits based on wages paid to qualifying Empowerment Zone employees. All of these zones typically offer tax incentives for employees to hire and retain disadvantaged workers and to invest in the economic growth of the region.
What’s the Punchline? In case you didn’t notice, each of the programs mentioned above involves a zone. And each of the program names include the word “zone” preceded by a motivational term like Enterprise, Empire, or Empowerment. And again, each of these programs is commonly (and confusedly) referred to by the same two-letter acronym — “EZ.”
Speak with Someone Who Can Help. If you think your business might be in a zone — any kind of zone — it’s worth your while to speak with someone who can sort it out for you. And in my experience, that person is usually not going to be your accountant.
Now, that is not to say anything negative about your accountant. I love accountants. Your accountant is your business’ best friend. But don’t fall into the trap of thinking that just because the word “tax” is included in the name of a tax incentive program, your accountant does (or even should) know the program’s details. Even worse, don’t expect him or her to be adept at qualifying you for benefits. Maximizing benefits takes a special expertise.
These programs produce a tax benefit, yes. But the benefit is usually triggered by hiring people (a human resource issue, not accounting), or by financial investments or loans (a corporate finance issue, not accounting), or by the purchase of qualifying business equipment (an operations issue, not accounting), or by the construction of qualifying edifices (an operations and architectural issue — but not accounting). Moreover, there are hundreds, maybe even thousands of tax-favored zones throughout the United States, each program with unique eligibility and technical requirements.
Your accountant’s world is complicated enough. My suggestion is, if you want to maximize your tax incentive benefits, find an expert with specialization in state and federal tax incentive programs. Ideally, find an expert that does NOT also provide general tax or accounting services. That way, your tax incentive expert can work directly with your own accountant without creating any unhelpful feelings of competition.
That’s my two-cents for today. It’s worth millions.