Industry/Attraction

Foreign Trade Zone has its Attractions

Palmdale Foreign Trade Zone­ (FTZ)

n Palmdale Foreign Trade Zone continues to represents a competitive advantage

for the area in industry attraction and retention.

n Trade authorities believe the zones will continue to have great value as an attractant to foreign investors seeking safe havens for capital.

n The FTZ arrangement mirrors the trend of multinational companies locating manufacturing and distribution centers closer to their markets.

Tax Liability in the FTZ

Being in an FTZ allows sophisticated manufacturers and importers to manufacture, assemble, process, store, test, re-label, repack or process imported materials with out paying customs duties or government excise taxes. If the final product is exported from the U.S., there is no tax liability. Therefore, a company currently importing components for final assembly here will likely find significant benefits from being in the FTZ.

Among those benefits are:

n Duty Reductions fall on the finished goods to a greater degree than the parts and components that make up the finished product.

n Duty Rate reduced to the ZERO Rate on the finished goods, down from the higher rates levied upon on the sum of the components

n Flexibility and compatibility with international transshipment

n Elimination of delays in customs clearances and duty drawback procedures

n Discounts on cargo insurance rates due to FTZ security

n Opportunity to hold merchandise subject to U.S. quotas until the quotas reopen

n Elimination of duties on labor

For information on ways in which the Palmdale Foreign Trade Zone might benefit your company, contact Carrie Rogers, FTZ representative, at 661 267-5125.

Greater Antelope Valley Economic Alliance

1 (800) 888-7483

Industry Roundtable Report

FIRST HALF 2000

Industry/Attraction

Antelope Valley Enterprise Zone-(AVEZ)

AVEZ PROGRAM

o Covers 61 square miles and encompasses Industrial and Commercial Property in

Palmdale, Lancaster and unincorporated Los Angeles County.

o Reduction in State business income tax to businesses that locate within the

Enterprise Zone through five tax incentives:

n 1. Sales and Use Tax Credit-

Individuals and partnerships may claim a credit equal to the sales or use tax paid on the first $1 million of qualified property for exclusive use within the boundaries
of the AVEZ, annually. Corporations may claim a credit equal to the sales or use tax
paid on the purchase of the first $20 million of qualified property.

Qualified Property includes:

machinery or machinery parts used to:

manufacture, process, combine or otherwise assemble a product;

produce renewable energy resources; or control air or water pollution;

data pollution and communications equiptment; and motion picture
manufacturing equiptment.

n 2. Hiring Credit-

An AVEZ business may reduce its State income tax by the amount of wages paid to one or more qualified employees up to $26,894 per employee over a five-year period. Employees must meet one of the thirteen eligibility categories.

n 3. Business Expense Deduction-

Part of the cost of certain property purchased for exclusive use in the AVEZ may be deducted as a business expense in the first year it is placed into service.

Qualified Property includes:

tangible personal property (excluding buildings),

most equipment,

and furnishings.

Office supplies and other nondepreciable items are not included.

n 4. Net Operating Loss Carryover-

Net operating losses (NOLs) of individuals or corporations doing business

in the AVEZ may be carried over to future years to reduce the amount of taxable EZ income for those years.

n 5. Net Interest Deduction for Lenders-

A deduction from income is allowed on the amount of "net interest" earned on loans made to a trade or business located in the AVEZ.

Businesses will also receive expeditious processing of plans and permits.

The following publication is available from the Franchise Tax Board or the Enterprises Offices in Lancaster or Palmdale: Guidelines for Enterprise Zone Tax Incentives, FTB Form 1047. This guide explains the five business related tax incentives to help businesses understand the potential financial impact of each provision and what must be done to take advantage of the tax incentive.

Greater Antelope Valley Economic Alliance

1 (800) 888-7483

Industry Roundtable Report

FIRST HALF 2000

Industry/Attraction

Examples of Enterprise Zone Savings

SMALL BUSINESS

Sales & Use Tax Credit Hiring Credit Cumulative Total

Year 1 $4,125 $89,648 $93,773

Year 2 $71,718 $165,491

Year 3 $53,789 $219,280

Year 4 $35,859 $255,139

Year 5 $17,930 $273,069

Assumptions: Company is a corporation

$50,000 of qualifying equipment purchased
Ten eligible full-time employees hired 1st year

Maximum hiring benefit applied ($8.62/hr.)

Sales Tax rate is 8.25%

MEDIUM BUSINESS

Sales & Use Tax Credit Hiring Credit Cumulative Total

Year 1 $165,000 $672,360 $837,360

Year 2 $82,500 $762,008 $1,681,868

Year 3 $582,712 $2,264,580

Year 4 $403,416 $2,667,996

Year 5 $224,120 $2,892,116

Year 6 $44,824 $2,936,940

Assumptions: Company is a corporation.

Qualifying equipment purchased 1st year; $2 million
Qualifying equipment purchased 2nd year; $1 million
75 eligible full-time employees hired 1st year
25 eligible full-time employees hired 2nd year
Maximum hiring benefit applied ($8.62/hr.)
Sales Tax is 8.25%

LARGE BUSINESS

Sales & Use Tax Credit Hiring Credit Cumulative Total

Year 1 $825,000 $4,482,399 $5,307,399

Year 2 $3,585,919 $8,893,318

Year 3 $4,930,639 $13,823,957

Year 4 $3,585,919 $17,409,876

Year 5 $2,241,200 $19,651,076

Year 6 $896,480 $20,547,556

Year 7 $448,240 $20,995,796

Assumptions: Company is a corporation

Eligible equipment purchased 1st year; $10 million
500 eligible employees hired 1st year
250 eligible employees hired 3rd year
Maximum hiring benefit applied ($8.62/hr.)
Sales Tax is 8.25%

These examples are intended as illustrations of the potential savings to businesses located within an

Enterprise Zone. It is recommended that you obtain professional advice to determine the potential benefits
for your business.

Industry Roundtable Report

FIRST HALF 2000

Greater Antelope Valley Economic Alliance

1 (800) 888-7483