Los Angeles Business Journal

Governor Signs Laws Replacing Enterprise Zones With Tax Breaks

By Howard Fine Thursday, July 11, 2013

Gov. Jerry Brown on Thursday signed legislation sharply restricting enterprise zone tax credits and replacing them with a sales tax exemption on the purchase of manufacturing equipment.

Brown signed two bills at a ceremony at a San Diego County biomedical company. AB 93 ends most of the hiring tax credits for companies in the state’s 42 enterprise zones as of January of next year. Instead, businesses seeking to move or expand will be allowed to compete for tax credits of up to $200 million a year, provided they can prove they are adding jobs over time. The bill also creates a one-year sales tax exemption for research and development equipment for biotech and manufacturing companies and all manufacturing equipment.

The other bill, SB 90, extends the sales tax exemption on manufacturing equipment to the year 2022. It also bans any state tax credits for strip clubs and other sexually oriented live entertainment businesses.

Enterprise zones, where businesses can apply for tax credits of up to $37,000 per worker hired from the zones, have long been controversial. They were designed to create jobs in disfavored areas but critics, including Brown, say that employment and income growth in enterprise zones have been roughly the same as in areas outside the zones. Also, some companies have abused the hiring tax credits by hiring workers from outside an enterprise zone and falsely claiming they were local residents.

Brown had tried in both 2011 and 2012 to eliminate enterprise zone tax credits, but business groups and other enterprise zone supporters had blocked those efforts. The replacement with tax breaks may have helped the latest effort clear the Legislature.

“This legislation will help grow our economy and create good manufacturing jobs,” Brown said in a statement. “Through our great university system and through the companies we have, California can build on the strength of intellectual capacity.”