Enterprise zones defined.

Most recent state reports on tax credits have revealed that only around 5% of California's 300,000 corporate tax returns took advantage of California business incentive credits.

Business incentive programs may be the best-kept secret in California even though they have been around for more than 20 years.

According to Barry Pine, President of Jacobs Pine Consulting, a Los Angeles based tax incentives consulting firm, "recent legislative changes have made California's tax incentives programs the most lucrative in the western region."

"Having worked with companies with operations throughout the Western United States, we have found California's tax incentive programs to be the most beneficial. In many instances, companies have eliminated their California tax liability all together. This is easy to understand when you consider that under many of the geographic based tax incentives programs including the enterprise zones, companies can claim a hiring credit equal to up to 50% of the wages paid to qualified employees," added Barry.

WHAT ARE ENTERPRISE ZONES?

The Enterprise Zone Program, sponsored by the State of California, is designed to provide state tax incentives for businesses to expand and relocate within California.

Through the Santa Ana Enterprise Zone, for example, a local business may earn a dollar for dollar credit against state income tax (as distinguished from deductions from taxable income).

Key incentives in the Enterprise Zones include:

* Hiring Credit: A qualified business may reduce its state income tax by the amount of wages paid to one or more qualified employees. $ 23,000 or more in tax credits is available per qualifying employee over a five-year period.

* Sales and Use Tax Credit: California state income tax may be reduced by the amount of sales or use tax paid on certain machinery purchases for exclusive use in an Enterprise Zone. $1.3 million per year or more in tax credits are available for qualifying machinery.

As of 1994, statewide businesses classified within Standard Industrial Codes (SIC), 2000 to 3999, have been able to take advantage of the Manufacturing Investment Credit (MIC) for acquisitions of manufacturing and process related machinery.

This 6% tax credit given on qualified property can be combined with the Enterprise Zone Sales and Use Tax Credit, netting businesses 13.75% or more in state income tax credits for the same property.

A CASE STUDY

One computer parts manufacturer, located in the Santa Ana Enterprise Zone, decided to take back contract fabrication.

They bought two CNC machines for $400,000 and added six new employees.

The company earned:

* Sales & Use Tax Credit of $31,000;

* Manufacturing Investment Credit of $24,000;

* Hiring Credit of $22,500.

Total credit earned equaled $77,500 assuming only three of the six employees are eligible. The credits also mean that as much as $840,000 of net income can be earned without paying state income tax.

WHERE ARE THE ZONES?

There are 39 Enterprise Zones in the state from Eureka to San Diego. Being the second largest manufacturing center in the United States, Santa Ana is the only Enterprise Zone in Orange County.

The Santa Ana Enterprise Zone covers 98% of the commercial and industrial area in Santa Aria. Presently there is 1.6 million square feet of industrial space and close to 2 million square feet of office facilities available for commercial operations.

Some of the larger employers located in the zone include Ricoh Electronics, GT Bicycles, Ingram Micro, PacifiCare and ITT/Cannon.

HOW TO GET INVOLVED

While the Enterprise Zone Program has broad applications to all industries, it is important to explore a company's tax position prior to quantifying actual savings in an enterprise zone.

It is advisable to talk to the State Franchise Tax Board or a tax incentive specialist to explore all relevant tax issues.

If a company does not anticipate tax liability in the foreseeable future, the Enterprise Zone program may not give an immediate return. However, there are many programs that an Enterprise Zone business can tap into that translate into direct benefits.

A SUCCESS STORY

Since 1993, more than 4,000 new jobs were created with the assistance of the Enterprise Zone.

Over 400 companies are actively participating in the pro gram in Santa Ana today.

Wage rate for the employees varied between minimum wage to $125,000 annually. Furthermore, over 40% of the employees were certified for professional and management positions and 60% of them are from surrounding cities in Orange County.

Average zone participants statewide claimed $ 6,000 to $ 8,000 of credits annually.

One company in the Santa Aria Enterprise Zone claimed half a million of state tax credit last year.

It is estimated that the California Enterprise Zone program has helped the state to reinvest $100 million of corporate income into industrial automation and job creation.

"The Enterprise Zone is an added incentive to operate a business in California," said Nancy Ronk, owner of Secure Communication, Inc. who recently expanded in the Santa Ana Enterprise Zone. The company employs 60 and was selected in the Inc. 500 in 1996.

LOOKING AHEAD

As California heads into an economic upswing, the opportunity to reduce California tax liability by maximizing various state tax incentives becomes increasingly important.

It is up to our business owners or corporate executives to determine whether or not these programs will work for them.

For more information on the Santa Ana Enterprise Zone, or to learn about the region's unique permit assistance team and training programs, please call [phone]. For Statewide Enterprise Zones, please contact Patrick Nevis at [phone].

Bonnie Birch is an account manager for the Santa Ana Enterprise Zone.