Enterprise Zone Financing and Sales Tax
Enterprise Zone (EZ) programs provide tax incentives to help encourage businesses to locate and expand in economically distressed areas of a state. These areas typically have a higher unemployment rate, lower per capita income, or a lower population growth rate. Businesses who are accepted into one of these programs are then eligible to apply for state sales and use tax refunds on qualified expenses. The level and amount of refund is related to how much of an investment is made and how many jobs are created by the business, but can greatly reduce their sales tax liabilities.
States set the criteria an area must meet to be designated an enterprise zone, this means that each state’s EZ program is somewhat different. However, typically to qualify as an enterprise zone the area must meet the state’s definition of distress, usually defined as having a high rate of unemployment or job loss. Other common requirements include low income, low education levels, population decline, or high vacancy rates.
States regulate the maximum number of zones that can be located within the state and a the number of EZ areas that can be created per year is often limited. States will sometimes designated whole counties or cities as distress zones. In fact, three states – Arkansas, Kansas and South Carolina – have even extended zone benefits to businesses throughout the state.
Enterprise Zone Program Benefits
Many states require businesses to meet performance standards to qualify for EZ benefits. Beyond the predictable location requirements, businesses may have to create a certain number of new jobs or make a substantial financial investment in the chosen area. Some states mandate that companies seeking to collect certain tax credits must pay employees above a certain wage and employee a certain percentage of local workers from the distressed area. Tax credits are also sometimes offered from hiring “disadvantaged” workers.
Common subsidies businesses in enterprise zones may qualify for include:
- Property tax discounts
- Investment tax credits
- Job creation tax credits
- Inventory tax exemption
- Sales and use tax exemptions or reductions
- Lower utility rates
- Financial assistance through low-interest loans
- Training grants
In some states, local zone authorities are given discretion over the choice of benefits offered, affecting what credits are offered and what criteria must be met to collect said credits. In other states, credits are only offered at the state levels.
Enterprise Zone Program Controversy
The debate is on between states on whether or not EZ programs are effective. Some states argue that even half sales tax revenue is more than none. However, other states disagree saying that businesses move into distress areas from other locations within the state to take advantage of the offered subsidies often coming up short on their end.
If yours is a business in or looking into taking advantage of EZ programs make sure to keep an eye on your sales tax liabilities. Make sure you are meeting the mandates set by the state and be aware of any policy changes that may occur. It is best to have a business plan in place to make sure you are complying with sales tax law in your area and a detailed action plan if you find sales tax errors. Sales Tax DataLink offers free evaluations of your data using our software to assess how we can best serve your business. We also offer outsourcing services so you can be sure your sales tax is done right.
Sales tax calculations and filing can be done by hand. When you make a sale, you figure out whether the goods and services are taxable and whether you have nexus in the buyer's tax jurisdiction. More on that later. Once you've determined that you need...
Sales tax is complicated. We've just gone through the annual flurry of back to school tax holidays, for example. If you're a remote seller of clothing, you probably sell mostly through retail. But you might have some direct to consumer sales. In some...
A lot of our clients are manufacturers, contractors, or in some other industry that doesn't usually have to think much about sales tax. Retailers know they have to collect sales tax, and usually plan for it. We often hear from people who had no idea...