Recently one of
our clients received a $65,000 refund from the Louisiana Department of Revenue. Under normal circumstances,
taxpayers are not entitled to get back sales tax they
pay to someone else for the purchase of materials and equipment. However, the check
our client received was the result of their participation, with our assistance,
in the Louisiana Enterprise Zone Program.
The
"Program" is a
group of incentives available to new or expanding businesses. The goal is job
creation and the benefits are state tax credits and a rebate of state and local
sales tax. Eligible businesses are those locating in an enterprise zone and
hiring qualifying individuals or businesses located anywhere and meeting certain
hiring requirements. There are 1,422 enterprise zones statewide, in both urban and rural
parishes.
The incentives the
Program offers are twofold. First, the business receives a $2,500 state tax
credit for each job created. The credit can be applied against both state income
and franchise tax. Additionally, if the expanding or new entity is a flow
through entity such as a limited liability corporation, the credit can flow
through to offset the state income tax of individual company owners. The credit
is expanded by an additional $2,500 for employers who hire AFDC (Aid to Families with
Dependent Children) recipients.
The eligible
employees hired must be Louisiana residents, 35% of which must be from one
the following groups:
• Receiving some
form of federal assistance
• Unemployable
by traditional standards
• Disabled
• Resident in an
enterprise zone.
Remember that only
35% of the new hires must meet these requirements and some are easier met than
others. An informed professional can walk you through the maze of the correct
hires.
The second
incentive available is a rebate of state and local sales tax. The sales taxes that
are refundable are for amounts paid on all equipment purchased and materials
used in the construction of a facility during a maximum of a 24-month period. The state sales tax rebate is 4%, while the local sales tax rebate ranges from
.5% to 2.5%. The local rebate is limited to the sales tax not designated for
education.
The
key to success in the Program lies in the planning stage. With proper planning, the taxpayer
can maximize the benefits of the Program and meet the necessary hiring requirements. Without proper planning, the taxpayer can miss the filing of an
important Program form, the advance notification, and thus fail to be eligible
for the Program.
The process of
obtaining the benefits of the Program takes time. The client mentioned above
paid the tax to their contractor on the construction of their building in 1998. Basically, the client engaged a contractor to build a restaurant for them.
The
client paid the contractor under the contract. Upon completion, the contractor
supplied the client with all of his material invoices and all invoices from any
subcontractors. The client is getting back the sales tax paid by the contractor
and subcontractors on the purchase of lumber, concrete, flooring, roofing
materials, drywall, etc. If subcontractors
buy materials in the parish where the project is located, the local
refundable tax is maximized.
The taxpayer is
currently awaiting a check from the city of New Orleans in the amount of
$35,000. The total refund was $100,000 sales tax refunded on a construction
contract of $2.5 million. Finally, the taxpayer picked up
job credits totaling $250,000 to be used against their future income and
franchise tax. Had Ericksen, Krentel & LaPorte been involved from the beginning,
the client could have received even more.
Patience is the
key to the process. Participation in the Program includes an application process
and board approval, followed by a contract with the state, followed by the
compliance process. The benefits, however, are worth the wait.
