Effective July 1, 2014, the state portion of the Sales and Use Tax will be eliminated for a wide range of equipment purchased by manufacturing firms. This would amount to a 4.1 percent reduction in the tax, but the local portion of sales taxes would remain in place. Firms do not have to be located in the old enterprise zones to be eligible. The tax reduction would apply toward purchases of a maximum of $200 million in eligible equipment per year, per company. The lower rate would apply at the time of purchase, firms will not have to apply for a tax refund. Instead, they will download and complete a form from the website of the California Board of Equalization (BOE) and submit the form to the supplier. BOE will be the agency responsible for promulgating regulations and monitoring compliance.

Effective January 1, 2014, manufacturing firms located in high unemployment areas of the state and some of the old enterprise zones will be eligible for a tax credit for hiring new employees. To be eligible for the credit, hiring the new employees must result in a net increase in full-time-equivalent employment for that company, and the wages paid to the new employees must exceed $12 per hour. The credit will only apply for hiring people who are either currently unemployed, returning military veterans, or prison parolees. At least 50 percent of a new employee’s work activities must take place in one of the designated economic areas, and a list of those areas is still being developed. The Franchise Tax Board is still formulating the details of the regulation, but they plan to post an update on their website (www.ftb.ca.gov) by September 13.

A new tax incentive program is being developed to help manufacturers stay in California, or to encourage companies to move to California. To be eligible, firms must demonstrate that the tax credit will result in the retention or creation of jobs, and promote new economic activity in areas of high unemployment. The amount of the tax credit will be negotiated between the company and the Governors’ Office of Business and Economic Development. The program will begin January 1, 2014, and the specific eligibility requirements and funding levels are still being developed. The total pool of funding available for the credits would be limited to $30 million in 2014, $150 million in 2015, and a maximum of $200 million per year in the following three years. The pool could be reduced if the use of the new sales tax credits and employment tax credits exceeds budget targets.