News and Insights

California Department of Housing and Community Development Releases Proposed Revisions to Enterprise Zone Regulations

Tax Development Jan 30, 2013

On January 11, 2013, the California Department of Housing and Community Development released proposed Enterprise Zone regulations that make substantial revisions to the hiring tax credit voucher application process. The proposed regulations reflect the reforms called for in Governor Jerry Brown’s proposed 2013-2014 budget, which was released on January 10, 2013.

The hiring tax credit is an income tax credit for businesses that hire targeted employees who work in designated Enterprise Zones. In order to take advantage of the credit, a business must submit a voucher application to the local Enterprise Zone manager. If the employee qualifies, the Enterprise Zone manager certifies that the employee is eligible. Currently, there is no time limit imposed for when a business can submit a voucher application.

The revised regulations propose to limit the practice of retroactive vouchering to one (1) year from the date of hire. Employers who hired prior to the effective date of the revised regulations will have a one (1) year grace period to voucher any current eligible employees. This means that for employees whose date of hire was before the effective date of the revised regulations, the voucher application must be received within twelve (12) months from the effective date of the revised regulations.

The revised regulations would impose a new requirement that the employer provide a copy of the employee’s signed Form W-4: Employee’s Withholding Allowance Certificate to establish the date of hire. In addition, Form W-4 or Form I-9 will no longer be accepted as proof of residency of an employee within a Targeted Employment Area (TEA). The proposed regulations require third-party verification of TEA residency, which can be substantiated with a copy of a driver’s license, voter registration card, utility bill, and other forms of documentation.

In addition to TEA third-party address verification, the proposed regulations require more information about the employee and employer on the voucher application, such as reason for employee termination, if applicable; percentage of time the employee’s work is performed in the Enterprise Zone; and the size and age of the employer’s business. The proposed regulations also include the requirement that the employer and any third party preparing the voucher application sign the voucher application under penalty of perjury.

The comment period for the proposed regulations ends February 28, 2013. Any voucher applications made prior to the effective date of the proposed regulations will be issued pursuant to the regulations in effect at the time the voucher application was submitted. Due to the uncertainty of the final content of the revised regulations, Ryan strongly encourages businesses to act expeditiously in determining if they are eligible for the hiring tax credit so that any voucher applications will be issued pursuant to the regulations currently in place. Although a one (1) year grace period is being proposed, it is likely that the new documentation requirements will become effective with the final regulations.

Ryan’s Credits and Incentives practice has extensive experience with California Enterprise Zone hiring credits. Ryan can perform the research necessary to determine if your business is operating within a California Enterprise Zone, identify employees who qualify for the hiring tax credit, prepare and submit voucher applications, calculate your hiring tax credit, and prepare and defend any amended return filings. Your business does not need to be increasing headcount to receive benefits under the Enterprise Zone hiring tax credit program. Our client-focused approach ensures the maximum credit with the least amount of effort from our clients.