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FTB changes economic development area forms

We've made the following changes to our economic development area (EDA) tax forms and publications:

FTB 3807, Local Agency Military Base Recovery Area Deduction and Credit Summary and Publication 1102, Guidelines for Local Agency Military Base Recovery Area, now provides the following guidance:

To qualify for Local Agency Military Base Recovery Area (LAMBRA) tax incentives a taxpayer must be conducting business within a LAMBRA and the taxpayer must have a net increase in jobs. To satisfy the net increase in jobs requirement, the taxpayer must meet two tests:

• Full-time employees in California at the end of the second taxable year less full-time employees in California before commencing business in California must equal one or more.

• If the first test is met, the taxpayer must employ at least one full-time employee within the LAMBRA during each of the first two taxable years after commencing business operations within the LAMBRA.

FTB 3807 (1997-1999) and Publication 1102 (Rev 6/98) both detail the first test. Neither the booklet nor the publication addresses the second requirement.

FTB Pub 1102, General Information, fifth paragraph, will be updated to read:

In order to qualify for the LAMBRA tax incentives a business must have a net

increase of one or more jobs within the first two taxable or income years of commencing business within California.

The 2000 tax forms and publications will reflect these corrections. For prior years (1997-1999) we will issue a statement referring customers to the 2000 forms for the proper calculation.

We also identified and corrected errors in our instructions for applying the apportionment formula (as provided by the statute) for calculating the EDA tax incentives.

The EDA tax incentives are limited to the amount of tax that would be imposed on the taxpayer's business income attributable to the EDA as if such income represented all the business income of the taxpayer.

This limitation is determined by using an apportionment formula as provided by the statute. For taxable years beginning on or after January 1, 1994 (for the LARZ) and January 1, 1998 (for all other EDAs), the apportionment formula is determined by multiplying the taxpayer's California apportioned business income by a fraction. The numerator is the taxpayer's EDA property divided by California property, plus EDA payroll divided by California payroll, divided by two as shown below:

EDA Business Income =

EDA Property (TP) + EDA Payroll TP)
CA Property              CA payroll

In 1997, we added an example to illustrate the above mentioned calculation. The example had two problems:

  1. In the denominator (for EDA calculations) we used the combined groups California factors when we should have used the EDA taxpayer's California factors.
  2. We used the combined groups CA apportioned income instead of the EDA taxpayer's CA intrastate apportioned income.

The errors were found in the following forms and publications:

  • FTB 3805Z, Enterprise Zone Deduction and Credit Summary;
  • FTB 3806, Los Angeles Revitalization Zone Deduction and Credit Summary;
  • FTB 3807, Local Agency Military Base Recovery Area Deduction and Credit Summary;
  • FTB 3808, Manufacturing Enhancement Area Credit Summary; and
  • FTB 3809, Targeted Tax Area Deduction and Credit.

The incorrect example is also in the 1997, 1998, and 1999 versions of California Package X. The 2000 tax forms and publications, including the 2000 Package X will contain the corrections.

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2

multiplied by: EDA Taxpayer Apportioned Business Income

January/February 2001

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