Enterprise Zone Tax Credit: Good News for Taxpayers

By John B. McCauley
The California Court of Appeals’ decision in Dicon Fiberoptics Inc. v. Franchise Tax Board has confirmed that the FTB can audit vouchers issued by a local agency and submitted by a taxpayer to the FTB in support of its claim for an enterprise zone tax credit. However, the good news for taxpayers is that the court held that it is up to the FTB to prove that a challenged voucher was issued by the local agency in error.

This is a big deal. The disputed credit in this case was in excess of $1 million. The FTB estimated that employers claimed about $68 million in credits in 2000 alone.

Nevertheless, the FTB has apparently been concerned that vouchers are being issued for the hiring of unqualified employees. It audited, at the request of the state agency charged with administering the enterprise zone credit program, vouchers issue by a local agency in Oakland, and found that a number of such vouchers were issued for employees who did not qualify for the credit program.

Accordingly, the FTB has also challenged enterprise zone credit vouchers provided by taxpayers. The Board of Equalization, in a 2006 formal opinion, held that the FTB can deny a credit if it determines that a voucher was not properly issued by the issuing local agency.

The FTB in this case argued that it was up to the taxpayer to provide proof that the local agency validly issued the voucher. The taxpayer said that it did not have access to the required information, such as the criminal background of employees.

The court agreed with the taxpayer. The FTB can deny a credit for an improperly issued voucher, but only if it can establish that the voucher was invalid.
John B. McCauley is a tax, mergers and acquisition and general transactional lawyer in Orange County.

This entry was posted on Tuesday, June 23rd, 2009 at 12:38 pm and is filed under Chapter News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.