Incentives Watch: Are Enterprise Zones the First Casualty of State Tax Reform?

After the 2012 elections, there were 36 states in which the executive branch and both chambers of the legislature were controlled by the same party.  Following the elections, the general consensus was that single-party control would likely pave the way to important business tax reforms in those states in 2013.

Among those states was California in which the democrats gained a super-majority in both houses, plus they control the governor’s seat.

And what was California’s first major move toward amending its tax code in 2013? Apparently, it was consigning its enterprise program to the chopping block, reports Bloomberg BNA’s Laura Mahoney in the Weekly State Tax Report.

The move was cheered by the Tax Foundation. “[T]he repeal of a flagship distortionary incentive is a good sign,” the organization opined.  Enterprise zone programs “encourage companies to move away from areas that have many high-skilled workers and better infrastructure in order to hire workers in low-skilled areas with worse infrastructures. This is inefficient, and not likely to be the best use for those resources,” notes the Tax Foundation.

California’s new tax credits include a new hiring credit for employers in areas of the state with the highest unemployment and poverty rates, a sales tax exemption on equipment purchases for manufacturing and biotechnology, and a fund to give tax incentives to specific companies that locate or expand in the state.

What will single-party control mean for tax credit programs in other states?  Ideas such as eliminating the income tax in favor of a broader sales tax seem to have fizzled out in states such as Louisiana.  Will these jurisdictions now turn their gaze towards tax credits?

For more information about state tax credits and incentives, check out Bloomberg BNA’s Credits and Incentives Portfolios.

In other developments . . .

The START-UP NY program was enacted to encourage new businesses to move to New York, especially the upstate area, by offering various tax incentives in return for locating to tax-free areas on or near certain institutions of higher education, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

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