Nationally Recognized Expert, Author, & SpeakerBlake is a nationally recognized expert on Location-Based Incentive Credits (LBICs), including; Federal Empowerment, State Enterprise Zones, Renewal Communities, Indian Tribal Lands and the Gulf Opportunity Zone (GO Zone). He is an authority on Energy and Environmental Taxation as well as vehicle leasing versus purchasing.

Blake is a regular columnist for the AICPA Corporate Tax Insider Newsletter reaching over 70,000 accounting professionals and frequent contributor to the “Dollars & Sense” column for the Long Beach Business Journal. He has lectured at numerous academic institutions including his alma maters of USC and CSULB. Numerous news media from USA Today, Los Angeles Times, KTLA News, KNX News Radio, KFI Radio to various business journals have relied on Blake as a technical resource for tax, economic, and business matters.

Blake has assisted in the development of the most comprehensive analytical software and database for Federal, State, and Local LBICs, currently used by over 200 tax departments throughout the United States.

Blake is available for technical advice, direct consultation, and speaking engagements.

HIGHLIGHTS

• Tax PartnerHolthouse Carlin & VanTrigt LLP

• Co-FounderNational Tax Credit Group LLC

• ChairLong Beach Area Chamber of Commerce

• Member, Tax Policy CommitteeCalifornia Chamber of Commerce

• Member, Long Beach "C-17 Red Team" and "Checkered Flag Committee"

• Over 25 Years of Experience

• Master in Business TaxationUniversity of Southern California

• Bachelor’s in Business AdministrationCalifornia State University, Long Beach

100 OCEANGATE, SUITE 800LONG BEACH, CALIFORNIA 90802

OFFICE 562.216.1800CELL 562.305.8050

BlakeC@BlakeChristian.com

Hiring, Equipment, and Other Location-Based Tax Credits, Corporate and High Net Worth Tax Planning

ONLINE REFERENCES

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NTCGTax.com

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California Tax Rates – Highest or Lowest in the Country?

It Depends on Your Address By: Blake E. Christian, CPA, MBT

December 2007 California is a great state with a vibrant economy, but we are consistently ranked near the bottom of national surveys evaluating the business-friendly nature of states throughout the country. While workforce, quality education systems, state and local regulations, and general operating costs are factored into these rankings, a state’s tax policies weigh heavily on these surveys – as well on the minds of business owners. Earlier this month Supply Side Economists, Arthur Laffer and Stephen Moore, released their latest comparative study of state competitiveness. This study, sponsored by the American Legislative Council, concludes that California is in the bottom 10 competitive states, based on 16 economic variables, including tax rates, state regulations, labor policies, etc. According to Laffer, in the last decade California has had only 50% of the population and job growth as compared to the 10 most favorably ranked states. California residents have also experienced income growth rates one-third slower than the top 10 states – which include: Utah, Arizona, South Dakota, Wyoming and Tennessee. It is clear that California businesses and individuals are faced with some of the highest marginal tax rates in the country – at 8.82% for most C Corporations and up to 10.3% for individuals making more than $1 million (note: an S Corporation owner can experience combined marginal rates of up to 11.8% for California purposes, when adding in the 1.5% California S Corporation level “toll tax”). However, there is a silver lining for California businesses and their equity owners (as well as certain lenders). Businesses can dramatically reduce their California income/franchise taxes by choosing to operate in any one of the 42 Enterprise Zones (EZ) jurisdictions throughout the state. The California and federal programs (e.g. Empowerment Zone, Renewal Communities, Indian Tribal Lands, etc.) can make California a very attractive place to start a business of any size. The California EZ program was developed in the mid 1980’s to encourage businesses to locate in, and expand in, economically depressed areas. Since these EZ’s have a higher concentration of businesses within their boundaries, approximately 20 % of California businesses are eligible for current year savings and possibly refunds for prior years, yet only a small fraction of these companies claim all the benefits they are entitled to. The program was extended and expanded during the last legislative session and is generally available for up to 15 years. By establishing or expanding a business in one or more of California’s EZ’s, businesses (as well as equity owners of S Corporations, LLC’s and Partnerships) are eligible for the following tax benefits:

1. Up to $11,700 of annual hiring tax credits for each economically disadvantaged or “at-risk” employee working in the EZ. Qualifying employees include residents living in certain census tracts (Targeted Employment Areas), most veterans, previously unemployed or downsized, physically or mentally challenged, Native Americans, and a variety of other employees,

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2. A sales/use tax credit for manufacturing (up to 9.25%), processing, technology, pollution control or energy conservation equipment used solely within an EZ,

3. Favorable financing, grants and/or preferential bidding on government contracts, and

4. Employee-level credits of up to $525 available to any employee working in an EZ with Adjusted Gross Income less than $16,334 (single) or $32,667 (joint).

For businesses making these socially responsible investments in EZ’s, the combined benefits can often reduce a taxpayer’s California tax liability to a small fraction of what taxpayers operating outside the EZ will pay. The net impact to the business includes lower labor/equipment costs, improved cash flow, additional funding to expand workforce and improve infrastructure, and higher business valuations. In coming years, we will likely see more companies and investors integrating these Location Based Incentive Credits (LBIC) into their strategic plans. The reason these programs resonate with businesses is that they produce a win-win-win result for employers-employees-communities:

Employers – obtain tax savings and easier funding; employees work for more financially secure companies with resources for training, technology and infrastructure.

Employees – can also obtain valuable personal-level tax credits. Community – benefits via lower unemployment rates, modernized business districts, and

improved business and residential real estate values. CalPERS, CALSTRS and private equity firms are beginning to take a hard look at making strategic investments in Emerging Domestic Markets (EDM), which overlap with the vast majority of EZ’s. These business communities are often populated with entrepreneurial start-ups involved in research & development, manufacturing/ processing, and distribution other B2B businesses. There are already significant LBIC tax breaks (often not quantified) sitting in many private equity firm’s portfolio companies, and these types of tax-advantaged investments will increase in coming years. In addition to the state EZ program, there are 40 other states with impactful LBIC programs. Some states with attractive inventive programs include: New York, Florida, Illinois, Georgia, Arkansas, Arizona and the Carolinas. There are also thousands of federal LBIC programs available in the majority of states with a variety of LBIC’s, including: Empowerment Zones, Renewal Communities, Gulf Opportunity Zones and Indian Tribal Lands programs. These federal programs generate employer hiring credits ranging from $1,500 to $4,800 per year, for each “qualified” employee and are available in over 5,000 distinct regions throughout the U. S. Earlier this year, Congress dramatically expanded the federal Work Opportunity Tax Credit (WOTC) program ($2,400 to $4,800 per “qualified employee”) to include a new category of eligible employee who is between the ages of 18 and 40 and lives in any one of the 408 newly designated “Rural Renewal Counties” representing approximately 13% of the U.S. Unlike most other LBIC programs, the WOTC (and Welfare-to-Work) program requires “certification” of the employees within 28 days of hire, but the credits are available to businesses operating in any geographic location.

California Tax Rates – Page 3 In addition to these valuable credits, certain state programs, as well as the Federal Empowerment and Renewal Community programs contain gain exclusions and/or other benefits upon the sale of certain business assets. For example, the seller of certain capital gain assets in a Federal Empowerment Zone can exclude up to 50% of such gain or roll over the gain into another Empowerment Zone business. Certain assets held over five years in a Renewal Community can be sold with a 100% federal exclusion. So the next time you hear a business owner bashing the state or federal tax system, just tell them that effective tax planning can start with these three simple words: “Location, Location, Location”. Blake Christian, CPA, MBT is a Tax Partner in the Long Beach Office of Holthouse, Carlin & Van Trigt LLP and Co-Founder of National Tax Credit Group, LLC. You can reach Blake at 562-216-1800 or blakec@hcvt.com

“Reduce Emissions While Reducing Your Taxes” By: Blake E. Christian, CPA, MBT

December 2007

California has been both a contributor to global warming, as well as a true trend-setter in developing environmentally friendly solutions to the world’s pollution and energy concerns. With a huge car-driving population, reliant on port operations for imported goods and raw materials, large numbers of diesel-spewing vehicles for transportation, and a large number of consumers of both business and personal goods, California represents a perfect Petri dish to see the worst and best of all forms of pollution as well as environmental and energy solutions. The next decade will be very telling as to whether our actions back up our well-documented desire to operate our businesses, vehicles and residences in much more eco-friendly manners. While routinely overlooked by many taxpayers, existing tax law provides an impressive variety of Incentive Tax Credits focused on pollution and energy reduction. Since there is widespread agreement that we need to focus significant attention and hard dollars on reducing all forms of pollution and reduce our reliance on petroleum-based energy, it should follow that we also focus our efforts on ways to most cost-effectively implement pollution and energy control measures. The Long Beach and Los Angeles Ports are leading the charge in adopting “green” action plans. The “Clean Truck” program, complete with cleaner burning Liquid Nitrogen Gas (LNG) port equipment and container trucks are already in use and will likely become the dominant transport vehicle in the coming years. A number of other area businesses are actively developing alternative fuel technologies. Seal Beach based Clean Energy (a Boone Pickens company) opened the first LNG filling station in Carson earlier this month. This will likely be repeated throughout the region and state as the transportation industry adopts these cleaner-burning trucks. Certain components of both filling stations and alternative-fuel trucks are eligible for tax credits of up to 30% of the cost, thereby assisting those taxpayers that take the lead in adopting clean technologies. Fortunately, there are numerous tax breaks already built into the state and federal tax statutes, including research and development credits and specific equipment credits, which can dramatically reduce the after-tax cost of reducing your business or residential carbon footprint. The following benefits are currently available under the state and/or federal tax statutes: California Tax Breaks

1) Enterprise Zone Sales/Use Tax Credits – any business operating in one of California’s 42 Enterprise Zones is eligible to claim an income/franchise tax credit equal to the sales or use tax paid on purchased or certain leased assets used in

Reduce Emissions Page 2

manufacturing, processing, research & development, pollution control or energy conservation. Proposals to allow new or retro-fitted clean-burning vehicles to qualify for this California credit are also being evaluated. This benefit translates into an asset acquisition reduction in the 7% to 9% range at the state level, and these eligible assets often generate federal tax benefits.

2) Research & Development Credits – Available to taxpayers conducting in-house

development of new technologies, including energy and pollution control. Combined federal and state credits up to 13% of incremental R&D expenditures.

Federal Tax Breaks

1) Energy Efficient Commercial Building Credits – any business owning or leasing a commercial building that is 50% or more energy efficient than a standard building can take a credit of up to $1.80 per square foot. Partial credits are also allowed to the extent the building meets energy efficiency standards (25% to 50% greater) with respect to lighting, HVAC or window/doors, etc.

2) Hybrid Vehicles & Light Trucks/Fuel Cell Credits – The credits range from $250 to

$4,000 for qualifying hybrid passenger vehicles and $1,000 to $4,000 for fuel cell motor vehicles.

3) Alternative Fuel Credits – The credits range from $2,500 to $4,000 for vehicles less

than 8,500 pounds, up to $20,000 to $32,000 for vehicles with a gross weight of more than 26,000 pounds. Efforts are underway to allow similar state credits.

Other Federal Environmental Breaks: – Geothermal or Solar Energy Property Credit ranging from 10% and 30% potential

credits respectively; – Advanced “ Lean Burn Technology” Vehicle credits ranging from $400 to $2,400

credits per vehicle;

– Certain shortened tax depreciable lives on pollution control equipment and current year “expensing” options for certain soil remediation costs.

While additional tax breaks are currently being considered at both the federal and state level, the aforementioned tax benefits should be fully evaluated by all taxpayers in order to implement the most environmentally friendly solutions in the most economically viable manner. Those businesses that are leaning towards “doing the right thing”, but have economic concerns, will find these tax breaks to be very attractive and will often swing the pendulum in their favor for implementing the best long-term technology.

*********************************************************** Blake Christian, CPA, MBT is a Tax Partner in the Long Beach office of HCVT LLP and is Co-Founder of National Tax Credit Group, LLC, a software development firm focused on location based federal and state tax incentives. You can reach Blake at 562-216-1800 or blakec@hcvt.com