The Salem Urban Enterprise Zone Association would like to remind Salem employees and businesses that the Salem UEZ was granted an extension to continue to operate through the end of 2022.
The existence of the Salem UEZ provides certain tax benefits to businesses which are in the zone as well as to employees who both work and live in the zone.
An employee who lives and works in the zone may receive a tax deduction of up to $ 7,500.00 from their Indiana individual income tax. In order to receive this deduction they must file a Schedule IT-40QEC form with their tax return.
This form needs to be provided to the employee by their employer.
A business/employer may receive tax credits for their investment in the zone.
Businesses are encouraged to meet with their tax adviser to discuss these benefits and filing the appropriate forms.
For additional information please contact: City of Salem 812-883-5060
The Salem Urban Enterprise Zone was established effective January 1, 2003 and is established for a 10 year period ending December 31, 2012 unless an extension is granted.
With the elimination of the inventory tax in the state of Indiana and specifically in Washington County, the primary tax incentive for businesses to join the Enterprise Zone has been eliminated. However, other incentives remain available and future incentives may be offered.
Business Participation Requirements:
1. Any business located with the Zone may take advantage of the incentives available. The business must then file an Enterprise Zone Business Registration (EZB-R) form by June 1st of the year following the calendar year for which the tax incentives were utilized. Therefore, any zone business that utilizes any of the incentives for tax year 2003 must file the EZB-R form by June 1, 2004.
2. Participation Fee: The participation fee is a percentage of the tax benefits (or savings) claimed. The participation fee for the SUEZ is 35% of the total zone tax savings. The taxpayer must also pay a percentage (1%) Registration fee to the State Urban Enterprise Zone Board if the zone benefits claimed exceed $1,000 (example: business saves $5,000; SUEZ participation fee is $1,750; state registration fee is $50)
3. A business must remain open and operating as a zone business for twelve (12) months of the assessment year for which the incentive is claimed.
4. Reinvestment Required: As a participant of the zone, the business is required to reinvest all of its tax savings (except for the registration fee and participation fee) for its property or employees in the zone. Examples include additional capital expenditures for buildings, machinery or equipment; additional inventory investment; or increase in total compensation for all zone resident employees.
Employee Expense Credit:
Zone employers can earn tax credits for employing zone residents. Credit is subtracted from business state tax liability based on wages paid to employees who live in the zone and work at least 50% of the time in the zone on a job related at least 90% of the time to the zone facility. In the case of an individual who is employed by a taxpayer that is a pass through entity, the zone resident employee must be first employed by the taxpayer after December 31, 1998.
The enterprise zone employer may take a tax credit which is the lesser of 10 percent (10%) of the INCREASE in wages paid to qualified employees (as defined above) or $1,500 multiplied by the number of qualified employees. This credit is calculated on Schedule EZ which is filed with the annual tax return.
If a pass-through entity is eligible for Enterprise Zone credits but does not have state tax liability against which the credits may be applied, then an individual who is a partner, shareholder, beneficiary, or member of the entity is entitled to the credit. The credit may be made in the amount of the tax credit multiplied by the percentage of pass-through entity’s distributive income to which the individuals are entitled.
Zone employers would have to participate and file the EZB-R registration by June 1st for tax savings generated by this credit.
See Indiana Department of Revenue Income Tax Information Bulletin # 66 for additional information.
Employee Wage Deduction:
The employee tax deduction means that a qualified employee’s wages, up to $7,500, are exempt from Indiana individual income tax. A “qualified employee” is one who lives in the enterprise zone, works at least 50% of his or her time in the enterprise zone and has at least 90% of his or her services are directly related to the company, nonprofit, state or federal government entity in the enterprise zone. This includes pass-through entities. One half of the adjusted gross income earned from a zone business, up to $7,500 may be deducted before taxes are calculated. At the current tax rate of 3.4% this could be worth up to $255 in tax savings for qualified employees.
Zone employers need to provide to its qualified employees Form IT-40 QEC. On it employers will provide information as to amount of compensation for the tax year during the period of residence in the Enterprise Zone. The qualified employees will take ½ of that amount or $7,500, whichever is less, as a deduction on their Indiana state income tax return as “Other Indiana Deduction”, Line F.
The employer does NOT need to file Form EZB-R nor pay any registration or participation fee for this incentive.
Investment Cost Credit:
Individuals purchasing an ownership interest in a business in the zone may be eligible for a credit of up to 30% of the investment on their state tax liability. The exact percentage depends on the following:
1. Type of business (manufacturer, retail, professional, high technology, or warehouse)
2. Amount of investment in real estate and personal property
3. Number of new jobs and percentage of those new jobs that will be reserved for zone residents
4. Equity financing.
The investment must be on a business or investment located within the enterprise zone. The investment must be from a new investor. Increased investment by current investors does not qualify.
No registration or fee is required.
Approval from the Indiana Department of Commerce (IDOC) must be obtained PRIOR to the investment purchase. The Department will determine the percentage to be applied toward the state tax liability. If IDOC approves the investment purchase as a qualified investment, they will send certification documents for the investor to attach to their individual income tax return.
Contact IDOC at (317) 232-8911 or 1-800-824-2476 for more information.
Loan Interest Credit:
An individual or business that pays taxes in Indiana is entitled to a 5 percent (5%) tax credit on interest income from a loan that benefits businesses or residents of an Enterprise Zone. To qualify, the loan must directly benefit an Enterprise Zone business; increase the assessed value of real property in an Enterprise Zone; or be used to rehabilitate, repair or improve a residence in a zone.
The lender does not need to be located in the zone to claim benefits. The loan interest credit can be applied to reduce the adjusted gross income tax (excluding any county income tax), supplemental net income tax, bank tax, savings and loan association tax and/or the financial institutions tax.
To claim the loan interest credit, Schedule LIC is filed with annual tax return. This credit can be carried forward for ten (10) years.
The lender, an individual or business, must register with the State Urban Enterprise Zone Board and the Salem Urban Enterprise Association to claim benefits. The lender must file the Form EZB-R and pay the participation and registration fees.