Tax Candi

I feel like I'm growing up as this blog progresses.  Time to move past some of the marshmallow-y posts and get to the chewy, rich and oh-so-satisfying statutory analysis!  So, first one up is an interesting development for California Enterprise Zone tax credits.

Last September, California enacted Assembly Bill 1452, which limited the amount of tax credits that may be used to offset state franchise tax liability while, at the same time, enabling corporate taxpayers to assign whole or partial credits to unitary affiliates.  (It's a nice little give a take on California's part.)  These assigned credits can be used beginning in the tax years following January 1, 2010, which is right around the corner. 

Now, eligible credits may only be assigned to eligible assignees.  An “eligible credit” includes any credit earned  in a taxable year on or after July 1, 2008 and any credit earned prior to July 1, 2008 that may be carried forward to the taxpayer’s first taxable year after July 1, 2008. An “eligible assignee” is any affiliated corporation that is a member of the same combined reporting group as the assigning taxpayer.

The assignment is irrevocable and must be made on the assigning taxpayer’s original return for that year, and the benefit of this assignment is limited—the assigned credit remains subject to any carryover limitations and may not reduce the franchise tax liability by more than 50%.  Additionally, Enterprise Zone credit may only offset taxes attributable to the particular Enterprise Zone and therefore the assignee may only use an assigned tax credit to reduce its tax liability based on its own income attributable to the same Enterprise Zone. (So really, it's not as good of a bargain as it first sounds.)

The trick to utilizing this credit-assignment scheme is to be a parent corporation with a few unique subsidiaries, doing business in about the same location.  If this description fits your company, check out some of the EZ tax benefits you may qualify for.

See, that wasn't so bad, was it?