California Enterprise Zone Business Booklet

Enterprise Zone Business Booklet
2018 Form 3805Z - Enterprise Zone Business Booklet
2018

Enterprise Zone Business Booklet

3805Z

California Forms & Instructions
Members of the Franchise Tax Board
Betty T. Yee, Chair
George Runner, Member
Keely Bosler, Member

This booklet contains:
Form FTB 3805Z, Enterprise Zone Deduction and Credit Summary

2018 Instructions for Form FTB 3805Z
Enterprise Zone Businesses

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2015, and to the C
­ alifornia Revenue and Taxation Code (R&TC).

Contents
General Information .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  2
How to Claim Deductions and Credits .  .  .  .  .  4
Part I – Credits and Recapture .  .  .  .  .  .  .  .  .  .  .  4
Hiring Credit .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  4
Hiring Credit Recapture .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  5
Worksheet IA, Hiring Credit and Recapture .   6
Sales or Use Tax Credit Carryover .  .  .  .  .  .  .  .  7
Part II – Portion of Business Attributable to
	 the Enterprise Zone .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  7
Part III – Net Operating Loss (NOL) Carryover
	 and Deduction  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 9
Worksheet II, Income or Loss
 Apportionment .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
Instructions for Schedule Z – Computation
  of Credit Limitations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
Worksheet III, Computation of NOL Carryover
  and Carryover Limitations .  .  .  .  .  .  .  .  .  .  .  . 13
Form FTB 3805Z, Enterprise Zone
  Deduction and Credit Summary .  .  .  .  .  .  .  . 17
Schedule Z, Computation of
  Credit Limitations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
Standard Industrial Classification Manual
  1987 Edition (Partial Listing) .  .  .  .  .  .  .  .  .  . 19
Principal Business Activity Codes  .  .  .  .  .  .  .  . 20
How to Get California Tax Information .  .  .  .  . 23

General Information
In general, for taxable years beginning on or
after January 1, 2015, California law conforms
to the Internal Revenue Code (IRC) as of
January 1, 2015. However, there are continuing
differences between California and federal law.
When California conforms to federal tax law
changes, we do not always adopt all of the
changes made at the federal level. For more
information, go to ftb.ca.gov and search for
conformity. Additional information can be found
in FTB Pub. 1001, Supplemental Guidelines
to California Adjustments, the instructions for
California Schedule CA (540 or 540NR), and the
Business Entity tax booklets.
The instructions provided with California tax
forms are a summary of California tax law
and are only intended to aid taxpayers in
preparing their state income tax returns. We
include information that is most useful to the
greatest number of taxpayers in the limited
space available. It is not possible to include
all requirements of the California Revenue
and Taxation Code (R&TC) in the instructions.
Taxpayers should not consider the instructions
as authoritative law.
Repeal of Geographically Targeted Economic
Development Area Tax Incentives
The California legislature repealed and made
changes to all of the Geographically Targeted
Economic Development Area (G-TEDA) Tax
Incentives. EZs and Local Agency Military Base
Recovery Areas (LAMBRA) were repealed on
January 1, 2014. The Targeted Tax Areas (TTA)
and Manufacturing Enhancement Areas (MEA)

Page 2  FTB 3805Z Booklet  2018

both expired on December 31, 2012. For more
information, go to ftb.ca.gov and search for
repeal tax incentives.
Enterprise Zone (EZ) Incentives Repealed
For taxable years beginning on or after
January 1, 2014, taxpayers cannot generate the
following EZ incentives:
•	 Business Expense Deduction
•	 Net Interest Deduction
•	 Net Operating Loss
For taxable years beginning on or after
January 1, 2014, taxpayers cannot generate
any EZ Hiring Credit. However, qualified
employees who are hired on or before
December 31, 2013, by the qualified taxpayer
within the EZ who paid or incurred qualified
wages during the 60-month period immediately
following the hire date, shall continue to qualify
for the credit under this section for taxable
years beginning on or after January 1, 2014.
For taxable years beginning on or after
January 1, 2015, taxpayers cannot generate the
EZ Sales or Use Tax Credit.
EZ Credits Carryover Period
The portion of any EZ sales or use tax credit
or hiring credit remaining for carryover to
taxable years beginning on January 1, 2014,
shall be carried over only to the succeeding
10 taxable years if necessary, or until the
credit is exhausted, whichever occurs first.
Any hiring credits generated in the current
taxable year for employees hired on or before
December 31, 2013, and unusable in the
current taxable year, may be carried over to the
succeeding 10 taxable years.
EZ Incentives
Generally, no further EZ incentives can be
generated after the expiration or repeal date.
Any EZ credit carryover or EZ net operating
loss carryover can continue to be utilized
to the extent of tax on business income or
business income attributable to the former EZ.
For employers engaged in a trade or business
in a former EZ, the hiring credit can be taken
for qualified employees hired on or before the
date of expiration or repeal of the EZ for the full
five-year period of the hiring credit. However,
the hiring credit may not be taken for any
employees hired after the date of expiration or
repeal of the EZ.
NASSCO AMT Reduction
The Board of Equalization ruled in the Appeal
of NASSCO Holdings, Inc., 2010-SBE-001,
November 17, 2010, that a corporate taxpayer
may use EZ credits and/or the Manufacturing
Investment Credit (MIC) to reduce corporate
alternative minimum tax (AMT). Go to
ftb.ca.gov and search for notice 2011-02
for additional information. However, the MIC
carryover has expired. Therefore, corporate
taxpayers can no longer use MIC carryover to
offset against AMT.

Minimum Wage
For any employer who employs 25 or fewer
employees, the California minimum wage is:
•	 $10.50 per hour from January 1, 2018
through December 31, 2018.
•	 $11.00 per hour from January 1, 2019
through December 31, 2019.
For any employer who employs 26 or more
employees, the California minimum wage is:
•	 11.00 per hour from January 1, 2018
through December 31, 2018.
•	 $12.00 per hour from January 1, 2019
through December 31, 2019.
Pass-Through Entities
For purposes of this booklet, the term
“pass‑through entity” refers to an
S corporation, estate, trust, partnership, and
a limited liability company (LLC). References
to “partnerships” include LLCs classified as
partnerships.
Single-Sales Factor Formula
R&TC Section 25128.7 requires all business
income of an apportioning trade or business,
other than an apportioning trade or business
under R&TC Section 25128(b), to apportion
its business income to California using
the single‑sales factor formula. For more
information, get Schedule R, Apportionment
and Allocation of Income, or go to ftb.ca.gov
and search for single sales factor. However,
business income apportioned to the EZ
continues to be apportioned based on the
property and payroll factors.
Assignment of Credit
Credit earned by members of a combined
reporting group may be assigned to an
affiliated corporation that is an eligible member
of the same combined reporting group. A
credit assigned may only be claimed by the
affiliated corporation against its tax liability.
For more information, see Schedule Z,
Computation of Credit Limitations, on page 12,
Assignment of Credit; form FTB 3544, Election
to Assign Credit Within Combined Reporting
Group; and form FTB 3544A, List of Assigned
Credit Received and/or Claimed by Assignee;
or go to ftb.ca.gov and search for credit
assignment.

Introduction
Economic Development Area
(EDA) Tax Incentives
California established four types of EDAs that
have related tax incentives. These incentives
have been established to stimulate growth
and development in selected areas that were
economically depressed. EDA tax incentives
applied only to certain business transactions
that were undertaken after an EDA had
received final designation from the Housing
and Community Development (HCD). Final
designation was when the HCD designated

an area to be an EDA. Tax incentives were
available to individuals and businesses
operating or investing within the geographic
boundaries of the following EDAs:
•	 Enterprise Zones (repealed on
January 1, 2014)
•	 Local Agency Military Base Recovery Areas
(repealed on January 1, 2014)
•	 Manufacturing Enhancement
Areas (designation expired on
December 31, 2012)
•	 Targeted Tax Areas (designation expired on
December 31, 2012)
Additional information on other EDAs can be
found in the following Franchise Tax Board (FTB)
tax booklets:
•	 The LAMBRA tax incentives, FTB 3807,
Local Agency Military Base Recovery Area
Business Booklet.
•	 The MEA hiring credit, FTB 3808,
Manufacturing Enhancement Area
Business Booklet.
•	 The TTA tax incentives, FTB 3809, Targeted
Tax Area Business Booklet.
References in this booklet to the “EZ” are
interpreted as “the boundaries of the former EZ
as it existed on December 31, 2013.”

Reporting Requirement
California statutes require the FTB to provide
information to the California Legislature
regarding the number of businesses using the
EDA tax incentives, types of EDA tax incentives
being used, and in which EDAs the businesses
are claiming the tax incentives.
Complete items A through I on Side 1 of form
FTB 3805Z, Enterprise Zone Deduction and
Credit Summary, as applicable. This information
will be used to meet the FTB’s statutory
reporting requirement.

Purpose

This booklet provides specific information
on the available EZ tax incentives. Taxpayers
operating or investing in a trade or business
located within a designated EZ may be
eligible for the following credit and/or claim
the following credit carryover and carryover
deduction:
•	 Hiring Credit
•	 Sales or Use Tax Credit Carryover
•	 NOL Carryover Deduction
Use this booklet to determine the correct
amount of credits and deductions that a
taxpayer may claim for operating or investing in
a trade or business located within a designated
EZ. Complete the worksheets in this booklet
for each credit and deduction for which the
business is eligible. Then enter the total credits
and deductions on form FTB 3805Z.

Enterprise Zone Designation

EZs were established in California to provide
tax incentives to businesses and allow private
sector market forces to revive the local
economy. The program offers special tax
incentives to entities and individuals located
in selected EZ areas and engaged in trades

or businesses within the selected Standard
Industrial Codes listed on page 19 of this
booklet.
The areas listed below are the areas that have
been officially designated as EZs.
Note: All EZs are repealed as of
January 1, 2014.
Repealed zones
Anaheim
Arvin
Barstow
Calexico
Coachella Valley
Compton
Delano
Eureka
Fresno – City
Fresno – County
Harbor Gateway
Communities
Hesperia
Imperial Valley
Kings County
Long Beach
Los Angeles – East
(formerly Eastside)
Los Angeles – Holllywood
Merced
(formerly Merced/
Atwater)
Oakland
Oroville
Pasadena
Pittsburg-Bay Point

Richmond
Sacramento
Salinas Valley
San Bernardino
(formerly Agua Mansa)
San Diego
San Francisco
San Joaquin
(formerly Stockton)
San Jose
Santa Ana
Santa Clarita Valley
Sequoia Valley
Shasta Metro
(formerly Redding/
Anderson)
Siskiyou County
(formerly Shasta Valley)
Southgate – Lynwood
Stanislaus
(including Ceres,
Modesto, Turlock and
Stanislaus County)
Taft
West Sacramento
Yuba/Sutter

Expired zones
Altadena/Pasadena
Antelope Valley
Bakersfield/Kern

(formerly SE Bakersfield)

Lindsay
Los Angeles – Central City
Los Angeles – Harbor Area
Los Angeles – Mid-Alameda
Corridor

City of Lynwood
Los Angeles – Northeast

Madera
Pittsburg
Porterville
Sacramento – Army Depot
Sacramento – Florin Perkins
San Diego – South Bay
San Diego – Metro
San Francisco
Shafter
Watsonville

	Valley

For business eligibility or zone related
information, including questions regarding EZ
geographic boundaries and designation period
dates, contact the HCD at hcd.ca.gov and
search for directory of zone contacts to find
Directory of Economic Development Areas.
For information that is zone-specific but not
tax-specific, you may contact the HCD. See
page 23 for the HCD contact information.

Forms List
The titles of forms referred to in this booklet are:
Form 100	
California Corporation Franchise
or Income Tax Return
Form 100S	 California S Corporation
Franchise or Income Tax Return
Form 100W	 California Corporation Franchise
or Income Tax Return –
Water’s-Edge Filers
Form 109	
California Exempt Organization
Business Income Tax Return
Form 540	
California Resident Income
Tax Return
Long Form	 California Nonresident or
540NR	
Part-Year Resident Income Tax
Return
Form 541	
California Fiduciary Income
Tax Return
Form 565	
Partnership Return of Income
Form 568	
Limited Liability Company
Return of Income
Schedule CA	 California Adjustments –
(540)	Residents
Schedule CA	 California Adjustments –
(540NR)	
Nonresidents or
Part-Year Residents
Schedule P	 Alternative Minimum Tax and
(540)	
Credit Limitations – Residents
Schedule P	 Alternative Minimum Tax
(540NR)	
and Credit Limitations –
­Nonresidents and Part-Year
Residents
Schedule R	 Apportionment and Allocation
of Income
FTB Pub.	
Guidelines for Corporations
1061	
Filing a Combined Report
Schedule C	 S Corporation Tax Credits
(100S)
Schedule D-1	 Sales of Business Property
Schedule K-1	 Shareholder’s Share of Income,
(100S)	
Deductions, Credits, etc.
Schedule K-1	 Beneficiary’s Share of Income,
(541)	
Deductions, Credits, etc.
Schedule K-1	 Partner’s Share of Income,
(565)	
Deductions, Credits, etc.
Schedule K-1	 Member’s Share of Income,
(568)	
Deductions, Credits, etc.
FTB 3544	
Election to Assign Credit Within
	
Combined Reporting Group
FTB 3544A	 List of Assigned Credit
Received and/or Claimed by
Assignee

Important Considerations
In general, EZ tax incentives applied only to
investments and business activities undertaken
within the EZ after the zone received final
designation and before the designation expired
or was repealed.

Who Can Claim the EZ
Tax Incentives?
The EZ credits and deductions are available
to individuals, sole proprietors, corporations,
estates, trusts, and partnerships operating or
investing in a trade or business located within
a designated EZ.

FTB 3805Z Booklet  2018  Page 3

How to Claim Deductions
and Credits
To claim any EZ deduction or credit, attach a
completed form FTB 3805Z to the C
­ alifornia
tax return.
Attach a separate form FTB 3805Z for each
EZ business operating or investing within a
designated EZ and for each EZ in which the
business operates. Also complete the following
schedule and/or worksheets:
•	 Corporations, complete Schedule Z and all
the worksheets, except for Worksheet II,
Income or Loss Apportionment, Section B.
•	 Sole proprietors, complete Schedule Z and
all the worksheets.
•	 Trusts, estates, and partnerships, complete
Worksheet IA Hiring Credit and Recapture,
and Worksheet II, Section A.
•	 Individual investors receiving pass-through
EZ credits, complete Worksheet II,
Section B and Schedule Z. All other
investors complete Worksheet II, Section A
and Schedule Z.
•	 Individual investors receiving a pass-through
loss, and having an overall NOL, complete
Worksheet II, Section B and Worksheet III,
Computation of NOL Carryover and
Carryover Limitations. All other investors
complete Worksheet III.
Schedule Z is on Side 2 of form FTB 3805Z.
Claim EZ business tax incentives on the
following returns:
Form 540 filers:	 Form 540, lines 43 through
45, as applicable.
Long Form	
540NR filers:	
Long Form 540NR,
lines 58 through 60, as
applicable.
Form 100 filers:	 Form 100, line 20, and
lines 24 through 26, as
applicable.
Form 100S filers:	 Form 100S, line 18, and
lines 22 through 24 as
applicable.
Form 100W filers:	 Form 100W, line 20, and
lines 24 through 26, as
applicable.
Form 109 filers:	 Check the “Yes” box for
Question I at the top of
Form 109, Side 1.
Keep all completed worksheets and supporting
documents for your records.

Form FTB 3805Z – Instructions
for Items A through I
For corporations, estates, trusts, exempt
organizations, and sole proprietors, who
operate a business in the EZ, complete items A
through I.
Investors of pass-through entities, complete
items A through D.
Standard Industrial Classification (SIC) and
Principal Business Activity (PBA) Codes
The PBA codes are based on the North
American Industry Classification System

Page 4  FTB 3805Z Booklet  2018

published by the United States Office of
Management and Budget. The PBA codes
are listed on page 20 through page 22 of this
booklet. Enter the PBA code of your principal
activities on form FTB 3805Z, Side 1.
For purposes of qualifying for the Long Beach EZ
hiring credit, use the SIC codes listed on page 19.
For the Long Beach EZ, enter the SIC code of
the establishment that qualifies you to take this
credit on form FTB 3805Z, Side 1. If your trade or
business has more than one establishment, and
if more than one of them qualifies you to take this
credit, enter the SIC code that best represents
your primary qualifying establishment.

Part I – Credits and Recapture
Line 1a – Hiring Credit
Note: All EZs are repealed as of
January 1, 2014.
For employers engaged in a trade or business
in a former (expired) or repealed EZ, the hiring
credit can be taken for qualified employees
hired on or before December 31, 2013, for
the full 60-month period of the hiring credit.
The hiring credit may not be taken for any
employees hired on or after January 1, 2014.
Hiring credits and carryovers may still be
claimed to the extent of business income
apportioned to the former expired or repealed
EZ. The portion of any credit remaining for
carryover to taxable years beginning on or after
January 1, 2014, shall be carried over only to
the succeeding 10 taxable years if necessary,
or until the credit is exhausted, whichever
occurs first. Any hiring credits generated in the
current taxable year for employees hired on or
before December 31, 2013, and unusable in
the current taxable year, may be carried over to
the succeeding 10 taxable years.
Employers hiring qualified employees, were
required to obtain VoucherCert 10-07 from the
local agency responsible for verifying employee
eligibility on or before December 31, 2014.
Do not file VoucherCert 10-07 with your tax
return. Keep the voucher for your records. For
vouchering questions, go to hcd.ca.gov and
search for vouchering.
Employers engaged in a trade or business
within an EZ may claim the hiring credit for a
qualified employee. A qualified employee is an
individual who meets all of the following:
•	 Was hired after the EZ received its
final designation and before the
designation expired.
•	 Spends at least 90% of work time for the
qualified employer on activities directly
related to the conduct of a trade or
business located within an EZ.
•	 Performs at least 50% of the work for the
qualified employer within the boundaries of
the EZ.
•	 Qualifies for the former program area hiring
credit or meets any of the following at the
time of hire:

  1.	 A person receiving or eligible to
receive subsidized employment,
training, or services funded by the
federal Job Training Partnership Act
(JTPA) or its successor.
  2.	 A person eligible to be a voluntary
or mandatory registrant under the
Greater Avenues for Independence Act
of 1985 (GAIN) or its successor.
  3.	 A member of a targeted group
as ­defined in the federal Work
­Opportunity Tax Credit.
  4.	 An economically disadvantaged
individual 14 years of age or older.
  5.	 A qualified dislocated worker.
  6.	 A disabled individual eligible for,
enrolled in, or who completed a state
rehabilitation plan.
  7.	 A service-connected disabled veteran.
  8.	 A veteran of the Vietnam era.
  9.	 A veteran who recently separated from
military service.
10.	 An ex-offender.
11.	 A person eligible for, or a recipient of
any of the following:
•	 Federal Supplemental Security
Income (SSI) benefits.
•	 Aid to Families with Dependent
Children (AFDC).
•	 Supplemental Nutrition Assistance
Program (SNAP).
•	 State and local general assistance.
12.	 A Native American.
13.	 A resident of a targeted employment
area (TEA).
For more information, refer to the federal JTPA
or its successor, the Workforce Investment
Act (WIA).
The percentage of wages used to compute the
credit depends on the number of years the
employee works for the employer in the EZ.
The applicable percentage begins at 50% and
declines 10% for each year of employment.
After the fifth year of employment, no credit
can be generated.
Wages that qualify for the hiring credit are
those wages paid to a qualified employee
for the consecutive 60-month period
beginning on the first date the employee
commenced employment with the employer.
For this purpose, commencement of
employment or the hire date is the first day of
employment for which the individual receives
wages/compensation. For an employer
that operates a business that has regularly
occurring seasonal or intermittent employment
decreases and increases, reemployment of
an individual is not a new hire; rather, it is a
continuation of the prior employment and does
not constitute commencement of employment
for the qualified wages test.

The credit is based on the smaller of
the following:
•	 The actual hourly rate paid or incurred by
the employer for work performed by the
employee during the taxable year.
•	 150% of the minimum hourly
wage established by the Industrial
Welfare Commission.
Where the ­California minimum wage is higher
than the federal minimum wage, the C
­ alifornia
minimum wage is used for purposes of
computing the EZ hiring credit.
The California minimum wage was $8 per hour
prior to July 1, 2014; $9.00 per hour from
July 1, 2014, through December 31, 2015;
and $10.00 per hour from January 1, 2016,
through December 31, 2017. For more
information in regard to the California
minimum wage, see General Information.
For the example below, the minimum wage
prior to July 1, 2014, was $8.00 per hour. For
purposes of computing the EZ hiring credit,
150% of the minimum wage was $12.00
per hour.
Example:
John Anderson was hired on January 1, 2013.
John’s hourly rate for the first month was the
minimum wage of $8.00. At the beginning of
the second month, his hourly rate increased
to $9.00. In the third month, John’s hourly
rate increased to $13.00. The hourly rate that
qualifies for the credit is limited to 150%
of the minimum wage, or $12.00 per hour.
The amount of qualified wages is computed
as follows:
Month(s)	 Hours  x	 Hourly =	 Qualified wages
	
per month 	 rate  	
per month
		allowed
  1	
175	
$ 8.00	 $1,400.00
  2	
170	
$ 9.00	 $1,530.00
 3	
170	
$12.00	 $2,040.00

Long Beach Enterprise Zone
The percentage of wages on which the hiring
credit is based increased for taxpayers
engaged in aircraft manufacturing activities
(described in Codes 3721, 3724, 3728, and
3812 of the Standard Industrial Classification
Manual, 1987 Edition, published by the United
States Office of Management and Budget).
See page 19 for a list of qualified SIC codes.
Qualified wages for purposes of the hiring
credit for such aircraft manufacturers located
in the Long Beach EZ, for up to a maximum of
1,350 qualified employees, are based on the
smaller of the following:
•	 The actual hourly rate paid or incurred by
the employer for work performed by the
employee during the taxable year.
•	 The rates (based on the time qualified
wages are paid or incurred) which represent
202% of the minimum hourly wage.
For more information in regard to the California
minimum wage, see General Information.
Example:
John Anderson was hired on January 1, 2013.
John’s hourly rate for the first month was
$9.00. At the beginning of the second month,

his hourly rate increased to $11.00. In the third
month, John’s hourly rate increased to $16.50.
The hourly rate that qualifies for the credit
is limited to 202% of the minimum wage,
or $16.16 per hour. The amount of qualified
wages is computed as follows:
Month(s)	 Hours   x	 Hourly =	 Qualified wages
	
per month 	 rate  	
per month
		allowed
  1	
175	
$ 9.00	 $1,575.00
 2	
170	
$11.00	 $1,870.00
 3	
170	
$16.16	 $2,747.20

Record Keeping
Retain a copy of Form VoucherCert 10-07 and
the documentation given to the vouchering
agency. In addition, for each qualified
employee, keep a schedule for the first 60
months of employment showing (at least):
•	 Employee’s name.
•	 Date the employee was hired.
•	 Number of hours the employee worked for
each month of employment.
•	 Smaller of the hourly rate of pay for each
month of employment or 150% (or 202%,
if applicable) of the minimum wage.
•	 Location of the employee’s job site and
duties performed.
•	 Records of any other federal or state
subsidies received for hiring the qualified
employee.
•	 Total qualified wages per month for each
month of employment.

Line 1b – Hiring Credit
Recapture
Recapture the amount of credit attributable
to an employee’s wages if the employer
terminates the employee at any time during the
longer of either of the following:
•	 The first 270 days of employment (whether
or not consecutive).
•	 90 days of employment plus 270
calendar days.
Employers of seasonal employees recapture
the amount of hiring credit attributable to the
employee’s wages if both of these apply:
•	 The employer terminates the employee
before the completion of 270 days
of employment.
•	 The 270 days is during the 60-month
period beginning the day the employee
commences employment with
the employer.
A “day of employment” means any day the
employee receives wage compensation
(including a paid sick day, holiday, or
vacation day).
The employer adds to the current year’s
tax the amount of credit claimed in the
year of termination and all prior years
in which the credit was claimed for the
terminated employee.
The credit recapture does not apply if the
termination of employment was any of
the following:

•	 Voluntary on the part of the employee.
•	 In response to misconduct of the ­employee
as defined in Cal. Code Regs., tit. 22,
sections 1256-30 to 1256-43.
•	 Caused by the employee becoming disabled
(unless the employee was able to return
to work and the employer did not offer to
reemploy the individual).
•	 Carried out so that other qualified
individuals could be hired, creating a net
increase in both the number of qualified
employees and the number of hours
worked.
•	 Due to a substantial reduction in the
employer’s trade or business operations.

Instructions for Worksheet IA –
Hiring Credit and Recapture
Section A – Credit Computation
Line 1, column (a) – Enter the name of
each qualified employee. Attach additional
schedule(s) if necessary.
Line 1, column (b) through column (f) – Enter
in the appropriate columns the qualified wages
paid or incurred during the taxable year to each
qualified employee listed in column (a).
Example: If you are a 2014 calendar year
taxpayer and you hired an employee on
June 1, 2013, enter the total qualified wages
paid to the employee for the period beginning
January 1, 2014, and ending May 31, 2014,
in column (b). You would enter the total
qualified wages paid to the employee for the
period beginning June 1, 2014, and ending
December 31, 2014, in column (c).
(a)
(b)
Employee 1st 12 months
name
John Doe Amount of
qualified wages
earned from
1/1/14 to 5/31/14.

(c)
2nd 12 months
Amount of qualified
wages earned from
6/1/14 through
12/31/14.

The qualified wages from June 1, 2013 to
December 31, 2013, were put in column (b) on
the 2013 worksheet.
The credit computation is based on a 12 month
period beginning with the employee’s
hiring date.

FTB 3805Z Booklet  2018  Page 5

Line 2, column (b) through column (f) – Add
the amounts in each column.
Line 3, column (b) through column (f) –
Multiply the total in each column of line 2 by
the percentage in each column.
Line 5 – The following credits reduce the EZ
hiring credit in the taxable year these credits
are accrued. Use the following worksheet to
determine the amount to enter on this line.
Credit	Amount
1	 LAMBRA Hiring Credit .  .  .  .  .  .  .  . _1 _______
2	 Enter the amount here if for the
2018 taxable year you claimed
the Federal Work Opportunity
Tax Credit for employees hired
on or after January 1, 2010,
and before August 31, 2011
(excluding unemployed veterans
and disconnected youths as
described in
IRC Section 51(d)(14)). .  .  .  .  .  .  . _2 _______
3	 Total: Add line 1 and line 2.
Enter on Worksheet IA,
Section A, line 5.  .  .  .  .  .  .  .  .  .  .  .  . _3 _______
No other California jobs tax credit may be
claimed for the same wage expense paid to
employees shown in line 1, column (a).
Line 6
A.	 For partnerships, enter the amount from
line 6 on form FTB 3805Z, Side 1, Part I,

line 1a. Include the current year hiring
amount on Forms 565 and 568, Schedule K,
line 15f and the distributive share of
the credit to partners and members on
Schedule K-1, line 15f. In addition, add the
entire amount of the credit on Schedule K,
line 1, column (c).
B.	 For corporations, individuals, estates, and
trusts, enter the amount from line 6 on
Schedule Z, as follows:
•	 Part II, line 8B, column (b) for
­corporations, individuals, estates,
and trusts.
•	 Part III, line 10, column (b) for
S corporations.
•	 Part IV, line 12, column (b) for
­corporations and S corporations
subject to paying only the minimum
franchise tax.
Important: Affiliated corporations that received
credits assigned under R&TC Section 23663,
do not include the assigned credits received on
this worksheet. Those credits are entered and
tracked on form FTB 3544A.
Credit Limitations
•	Businesses reduce any deduction for
wages by the amount of the hiring credit.
•	 S corporations are allowed only 1/3 of
the EZ hiring credit by operation of law.
S corporations reduce their wage deduction
by 1/3 of the amount on Worksheet IA,
Section A, line 6. Make the wage deduction

adjustment on Form 100S, line 7. In
addition, add back the entire amount of the
credit on Form 100S, Schedule K, line 1,
column (c).
	Example: In 2018, an S corporation
qualified for a $3,000 EZ hiring credit.
S corporations can claim only 1/3 of the
credit ($3,000 x 1/3 = $1,000). Therefore,
the S corporation must reduce its wage
deduction by $1,000. On Form 100S,
Schedule K, line 1, column (c), the
S corporation would add $3,000 to its
ordinary income or loss to reflect the credit
passed through to the shareholder(s).
•	 The amount of hiring credit claimed
may not exceed the amount of tax on
the EZ business income in any year. Use
Schedule Z to compute the credit ­limitation.
•	 In the case where the wage expense
qualifies the business to take the EZ hiring
credit as well as the LAMBRA, MEA, or TTA
hiring credit, the business may claim only
one credit.
•	 The portion of any credit remaining for
carryover to taxable years beginning on
or after January 1, 2014, shall be carried
over only to the succeeding 10 taxable
years if necessary, or until the credit is
exhausted, whichever occurs first. In the
case of an S corporation, 1/3 of the credit
can be carried over if it cannot be used in
the current year. The remaining 2/3 must be
disregarded and may not be carried over.

 Worksheet IA  Hiring Credit and Recapture – Enterprise Zones
Section A  Credit Computation. You cannot take the EZ hiring credit and another credit for the same wage expense.
	
Qualified wages paid or incurred for year of employment
	(a)	
(b)	
(c)	
(d)	
(e)	
	
Employee’s name	
1st year	
2nd year	
3rd year	
4th year	
1

(f)
5th year

2	 Total. See instructions  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
3	 Multiply line 2 by the percentage for each	.50	.40	.30	.20	.10
	 column. See instructions  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
4	 Add the amounts on line 3, column (b) through column (f) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	 4
5	 Enter the total amount of 2018 California and federal jobs tax credits allowed. See instructions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	 5
6	 Subtract the amount on line 5 from the amount on line 4 and enter the result here. See instructions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	 6	
Section B  Credit Recapture
		
(a)	
(b)
	
Terminated employee’s name	
Recapture amount
1

2	 Total amount of credit recapture. Add the amount in column (b). See instructions for where to
report on your California tax return  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	 2

Page 6  FTB 3805Z Booklet  2018

For additional information about the treatment
of credits for S corporations, see instructions
for Schedule Z.

Section B – Credit Recapture
Line 1, column (a) – Enter the name of
the terminated employee. Attach additional
schedule(s) if necessary.
Line 1, column (b) – Enter the amount of
credit recapture for each employee listed in
column (a).
Line 2 – Enter the amount from line 2,
column (b) on form FTB 3805Z, Side 1, Part I,
line 1b.
Also, include the amount of hiring credit
recapture on your ­California tax return or
schedule as follows:
•	 Form 100, Schedule J, line 5.
•	 Form 100S, Schedule J, line 5 and
Schedule K-1 (100S), line 17d.
•	 Form 100W, Schedule J, line 5.
•	 Form 109, Schedule K, line 4.
•	 Form 540, line 63.
•	 Long Form 540NR, line 73.
•	 Form 541, line 37 and
Schedule K-1 (541), line 14d.
•	 Form 565, Schedule K, line 20c and
Schedule K-1 (565), line 20c.
•	 Form 568, Schedule K, line 20c and
Schedule K-1 (568), line 20c.
Indicate that you included the hiring credit
recapture on your tax return by writing
“FTB 3805Z” in the space provided or next to
the line on the schedule or form.
Partnerships identify the recapture amounts
for partners and members on Schedule K-1
(565 or 568).
S corporation shareholders recapture the
portion of credit that was previously claimed,
based on the terminated employee’s wages.
In addition, identify the recapture amount for
shareholders on Schedule K-1 (100S). This
amount will differ from the amount recaptured
by the S corporation on Form 100S, Schedule J.

Line 1c – Sales or Use
Tax Credit Carryover
All EZs are repealed as of January 1, 2014.
For taxable years beginning on or after
January 1, 2014, taxpayers cannot generate
any sales or use tax credit. However, taxpayers
can claim the EZ sales or use tax credit
carryover from previous years to the extent
of the amount of tax on the business income
apportioned to the former EZ. The portion of
any credit remaining for carryover to taxable
years beginning on or after January 1, 2014,
shall be carried over only to the succeeding
10 taxable years if necessary, or until the credit
is exhausted, whichever occurs first.

Part II – Portion of
Business Attributable to the
Enterprise Zone
EZ tax credits are limited to the tax on business
income attributable to operations within the
EZ. EZ deductions are limited to business
income attributable to operations within the EZ.
If the business is located within and outside
an EZ, or in more than one EZ, determine the
portion of total business operations that are
attributable to each EZ. Each taxpayer must
complete one form FTB 3805Z for each zone,
and therefore, must also compute the income
limitation for each one.
For taxpayers operating in an expired EZ, any
EZ credit or NOL carryover can be utilized to
the extent of business income apportioned to
the former EZ.

Business Income vs.
Nonbusiness Income
Only business income is apportioned to the EZ
to determine the incentive limitation.
Business income is defined as income arising
from transactions and activities in the regular
course of the trade or business. Business
income includes income from tangible
and intangible property if the acquisition,
management, and disposition of the property
constitute integral parts of the regular trade
or business operations. Nonbusiness income
is all income other than business income.
See Cal. Code Regs., tit. 18 section 25120
for further references and examples of
nonbusiness income.
For corporations and entities doing business
in and outside of the enterprise zone, use
Worksheet II, Section A, to determine the
EZ apportionment factor to determine the
amount of business income attributable to the
Enterprise Zone.
Pass-through entities report to their
shareholders, beneficiaries, partners, and
members the following:
1.	 The distributive (or pro-rata for
S corporations) share of the business
income apportioned to the EZ.
2.	 The distributive (or pro-rata for
S corporations) share of the business
capital gains and losses apportioned to the
EZ included in item 1.
3.	 The distributive (or pro-rata for
S corporation) share of the EZ property and
payroll to corporate partners, members,
shareholders, beneficiaries.
Report these items as other information on
Schedule K-1 (100S, 541, 565 or 568.)
For an individual, use Worksheet II, Section B
to determine business income attributable to
the EZ. Business income includes but is not
limited to California business income or loss
from federal Form 1040 (Schedule C, Profit

or Loss from Business (Sole Proprietorship);
Schedule D, Capital Gains and Losses;
Schedule E, Supplemental Income and Loss;
Schedule F, Profit or Loss from Farming); and
California Schedule D-1, Sales of Business
Property (or federal Form 4797, Sales of
Business Property, if California Schedule D-1
is not needed), as well as wages. Be sure
to include casualty losses, disaster losses,
and any business deductions reported on
federal Form 1040, Schedule A as itemized
deductions.
Generally, all income which arises from the
conduct of trade or business operations of a
taxpayer is business income.
If you elected to claim part or all of your
current year disaster loss under IRC
Section 165(i)(1) on prior year’s tax return,
do not include the amount of the loss that
was claimed on prior year’s tax return in your
current year business income from the EZ.

Apportionment
Business income is apportioned to an EZ by
multiplying the total California business
income of the taxpayer by a fraction. The
numerator is the property factor plus the
payroll factor, and the denominator is two.
Loss is apportioned to an EZ by multiplying
the taxpayer’s total overall business loss by a
fraction. If a taxpayer conducts businesses in
more than one EZ, the EZ apportionment factor
and credit limitations are computed separately
for each EZ.
Property Factor
Property is defined as the average value of all
real and tangible personal property owned or
rented by the business and used during the
taxable year to produce business income.
Property owned by the business is valued at
its original cost. Original cost is the basis of
the property for federal income tax purposes
(prior to any federal adjustment) at the time
of acquisition by the business, adjusted for
subsequent capital additions or improvements
and partial dispositions because of sale or
exchange. Allowance for depreciation is
not considered.
Rented property is valued at eight times the
net annual rental rate. The net annual rental
rate for any item of rented property is the total
rent paid for the property, less total annual
subrental rates paid by subtenants.
Payroll Factor
Payroll is defined as the total amount paid to
the business’s employees as compensation for
the production of business income during the
taxable year.
Compensation means wages, salaries,
commissions, and any other form of
remuneration paid directly to employees for
personal services.

FTB 3805Z Booklet  2018  Page 7

Payments made to independent contractors or
any other person not properly classified as an
employee are excluded.
Compensation Within the Enterprise Zone
Compensation is considered to be within the
EZ if any of the following tests are met:
1.	 The employee’s services are performed
within the geographical boundaries of the EZ.
2.	 The employee’s services are performed
within and outside the EZ, but the services
performed outside the EZ are incidental to
the employee’s service within the EZ.
	 Incidental means any temporary or
transitory service performed in connection
with an isolated transaction.
3.	 If the employee’s services are performed
within and outside the EZ, the employee’s
compensation is attributed to the EZ if any
of the following items are met:
A.	 The employee’s base of operations is
within the EZ.
B.	 There is no base of operations in any
other part of the state in which some
part of the service is performed, and the
place from which the service is directed
or controlled is within the EZ.
C.	 The base of operations or the place
from which the service is directed or
controlled is not in any other part of
the state in which some part of the
service is performed and the employee’s
residence is within the EZ.
	 Base of operations is the permanent
place from which employees start work
and customarily return in order to
receive instruction from the taxpayer or
communications from their customers
or persons; to replenish stock or
other material; to repair equipment;
or to perform any other functions
necessary in the exercise of their trade
or profession at some other point or
points.
Corporations Filing a Combined Report
When determining the income attributable
to the EZ, the business income of each
corporation doing business in the EZ is the
business income apportioned to California as
determined under combined report mechanics.
For more information on combined reports, get
FTB Pub. 1061. Each corporation computes the
income attributable to the EZ by multiplying
California business by EZ apportionment factor
computed in Worksheet II, Section A. The EZ
property and payroll factors used to determine
the EZ income includes only the taxpayer’s
California amounts in the ­denominator.
Each corporation doing business in the EZ
compute the business income attributable to
the EZ according to their own apportioned
California business income and interstate
apportionment factors.

Page 8  FTB 3805Z Booklet  2018

Example: Computation of EZ income assigned
to each entity operating within the EZ
Parent corporation A has two subsidiaries,
B and C. Corporations A and B operate within
an EZ. The combined group operates within
and outside California and apportions its
income to California using Schedule R. Assume
the combined group’s business income
apportioned to California was $1,000,000 and
Corporation A’s and B’s share of business
income assigned to California is $228,000 and
$250,000 respectively. Corporation A’s and B’s
separate EZ and separate California property
and payroll factor amounts are shown as
follows.
Business income apportioned to the EZ was
determined as follows:
	 	
A	B

Payroll Factor
When determining income apportioned to
the EZ, the numerator of the payroll factor is
the taxpayer’s total compensation paid to the
employees for working within the EZ during
the taxable year. See Worksheet II, Section A,
column (b). The denominator of the payroll
factor is the taxpayer’s total compensation
paid to employees working in California. See
Worksheet II, Section A, column (a).
The average apportionment percentage
shown on line 4 represents the portion of the
taxpayer’s total business that is attributable
to activities conducted within the EZ. Factors
with zero balances in the totals of column (a)
will not be included in the computation of
the average apportionment percentage. For
example, if the taxpayer does not have any
payroll within or outside the EZ, the average
Property Factor
EZ property	
$1,000,000	 $  800,000	
apportionment percentage would be computed
California property	
$1,000,000	 $1,200,000	
by dividing line 3 by one instead of by two as
  Apportionment %	 100%	66.66%	 normally instructed.
Payroll Factor
EZ payroll	
$  800,000	 $  800,000	
California payroll	
$  800,000	 $1,000,000	
  Apportionment %	 100%	80%	
Average
Apportionment %	
100%	73.33%	
(Property + Payroll Factors)
     2
Apportioned
Business Income	
$  228,000	 $  250,000	
EZ business income	

$   228,000	 $  183,325

Instructions for Worksheet II –
Income or Loss Apportionment
Section A – Income
Apportionment
Use Worksheet II, Section A, Income
Apportionment, to determine the amount of
business income apportioned to the EZ.
If the business operates solely within a single
EZ and all its property and payroll are solely
within that single EZ, enter 100% (1.00) on
Section A, line 4, column (c). Do not complete
the rest of Worksheet II. The apportioned
EZ business income determines the amount
of the tax incentives that can be used. A
taxpayer’s EZ business income is its California
business income multiplied by the specific
EZ apportionment percentage computed in
Worksheet II, Section A.
Property Factor
When determining the income apportioned to
the EZ, the numerator of the property factor
is the average value of the real and tangible
personal property owned or rented by the
business and used within the EZ during the
taxable year to produce EZ business income.
See Worksheet II, Section A, column (b). The
denominator of the property factor is the total
average value of all the taxpayer’s real and
tangible personal property owned or rented and
used during the taxable year within California.
See Worksheet II, Section A, column (a).

Section B – Income or Loss
Apportionment
Form 540 and Long Form 540NR filers, use
Worksheet II, Section B to determine the
amount to enter on the following:
•	 Worksheet III, line 1 and line 6
•	 Schedule Z, Part I, line 1 and line 3
Do not include disaster losses in any amounts
used in the table.
Only California source business income
is apportioned to the EZ. A taxpayer’s EZ
business income is its California apportioned
business income computed using Schedule R,
multiplied by the specific EZ apportionment
percentage computed using Worksheet II,
Section A.
Determine which portion of the taxpayer’s
net income is “business income” and which
portion is “nonbusiness income.” Only
business income is apportioned to the EZ. See
Part II, Portion of Business Attributable to the
Enterprise Zone instructions, for a complete
discussion of business and nonbusiness
income.
Part I – Individual Income and
Expense Items
Wages
Taxpayers with wages from a company located
within and outside an EZ determine the EZ
wage income by entering the percentage of
the time that they worked within the EZ in
column (b). The percentage of time should
be for the same period for which the wages
entered on line 1 were earned. Determine this
percentage based on their record of time and
events such as a travel log or entries in a daily
planner.

Part II – Pass-Through Income
or Loss
Individuals with a Schedule K-1
The individual partner, member, or shareholder
completes Worksheet II, Section B, Part II,
Pass-Through Income or Loss, and
Schedule Z, Computation of Credit Limitation.
Multiple Pass-Through Entities
If you are a shareholder, beneficiary, partner,
or member of multiple pass-through entities
located in the same enterprise zone, see the
example for computing your enterprise zone
business income.
Example:
Trade or
business
income
from
Entity’s
Schedule K-1
EZ
EZ
Pass-through (100S, 541, apportionment apportioned
entity
565, or 568) percentage
income
ABC, Inc.
$40,000
80%
$32,000
A, B, & C

30,000

10%

ABC, LLC

10,000

50%

Total

3,000
5,000
$40,000

Part III – Taxpayer’s Trade
or Business
Business Income or Loss
Use business income or loss from federal
Form 1040 Schedules C, C-EZ, E, and F, plus
California adjustments from Schedule CA (540
or 540NR) for each trade or business. Also
include business capital gains and losses from
Schedule D and business gains and losses
from California Schedule D-1 (or federal
Form 4797, if California Schedule D-1 is not
needed) as adjusted on Schedule CA (540 or
540NR).
Income Computation
Located Entirely Within the Enterprise Zone
Line 6 – Line 9: If your business operation
reported on federal Form 1040 Schedule C,
C‑EZ, E, F, or other schedule is entirely within
the EZ, enter the income or loss from this
activity in column (a), and enter 1.00 in
column (b).
Line 11 and Line 12: If the gain or loss
reported on Schedule D or Schedule D-1 as
adjusted on Schedule CA (540 or 540NR)
was attributed to an asset used in an activity
conducted entirely within the EZ, enter the gain
or loss reported in column (a), and enter 1.00
in column (b).
Located Entirely Within California
Line 6 – Line 9: If your business operation
reported on federal Form 1040 Schedule C,
C‑EZ, E, F, or other schedule is entirely within
California, enter the income or loss from
this activity in column (a). To determine the
apportionment percentage in column (b),
complete Worksheet II, Section A. Enter the
percentage from Worksheet II, Section A,
line 4, column (c) on Worksheet II, Section B,
column (b).

Line 11 and Line 12: If the gain or loss
reported on Schedule D or Schedule D-1 as
adjusted on Schedule CA (540 or 540NR)
was attributed to an asset used in an activity
conducted entirely within California, enter
the gain or loss reported in column (a). To
determine the apportionment percentage in
column (b), complete Worksheet II, Section A.
Enter the percentage from Worksheet II,
Section A, line 4, column (c) on Worksheet II,
Section B, column (b).
Located Within and Outside the Enterprise
Zone and California
Line 6 – Line 9: If your business
operation reported on federal Form 1040
Schedule C, C‑EZ, E, F, or other schedule is
within and outside the EZ and California, get
California Schedule R and complete line 1
through line 18b and line 28 through line 31.
Enter the amount on Schedule R, line 18b
and line 31 in column (a) of this worksheet.
To determine the apportionment percentage
in column (b), complete Worksheet II,
Section A. Enter the percentage from
Worksheet II, Section A, line 4, column (c) on
Worksheet II, Section B, column (b).
When computing Schedule R, disregard any
reference to Forms 100, 100S, 100W, 100X,
565, or 568. Also disregard any reference to
Schedules R-3, R-4, or R-5.
Nonresidents that have an apportioning
business that operates within the EZ should
have already computed Schedule R, and can
use those amounts when that schedule is
referenced. Residents complete a Schedule R
in order to determine their California source
business income for purposes of the EZ
credit computation.
Line 11 and Line 12: If the gain or loss
reported on Schedule D or Schedule D-1 as
adjusted on Schedule CA (540 or 540NR)
was attributed to an asset used in an activity
conducted within and outside the EZ and
California, get Schedule R and complete
Schedule R-1. Multiply the gain or loss
reported by the percentage on Schedule R-1,
Part A, line 2 or Part B, line 5 and enter
the result in column (a). To determine the
apportionment percentage in column (b),
complete Worksheet II, Section A. Enter the
percentage from Worksheet II, Section A,
line 4, column (c) on Worksheet II, Section B,
column (b).
Line 14 – If you are computing the EZ business
income and the result on the Worksheet II,
Section B, line 14, column (c) is a positive
amount and:
•	 You have EZ NOL carryovers, enter the
amount on Worksheet III, line 1 and line 6
(skip line 2 through line 5).
•	 You have EZ credit or credit carryovers,
enter the amount on Schedule Z, Part I,
line 1 and line 3 (skip line 2).
If the amount is negative, you do not have any
business income attributed to the EZ and you
cannot utilize any EZ NOL carryover, credit(s), or
credit carryover(s) in the current taxable year.

Part III – Net Operating Loss
(NOL) Carryover and Deduction
All EZs are repealed as of January 1, 2014.
Taxpayers can no longer generate any EZ
NOL beginning on or after January 1, 2014.
However, taxpayers can claim an NOL
carryover deduction from prior years.
For NOLs incurred in taxable years beginning
on or after January 1, 2008, California
has extended the NOL carryover period to
20 taxable years following the year of the loss.
A business that operates or invests within an
EZ that generated an NOL in a taxable year
beginning before January 1, 2008, can carry
the NOL forward 15 years. In addition, up to
100% of the NOL generated in an EZ can be
carried forward.
For taxable years beginning in 2010 and
2011, California suspended the NOL carryover
deduction. Taxpayers continued to compute
and carryover NOLs during the suspension
period. However, corporations with net income
after state adjustments (pre-apportioned
income) or individuals with modified adjusted
gross income of less than $300,000, or with
disaster loss carryovers are not affected by the
NOL suspension rules.
If corporations are required to be included
in a combined report, the 2010 and 2011
NOL limitation amount of $300,000 or
more shall apply to the aggregate amount
of pre‑apportioned income for all members
included in the combined report.
Corporations use Form 100 or Form 100W,
line 17, or Form 100S, line 14 less line 16 to
determine net income after state adjustments
(pre-apportioned income).
Individuals use the amount shown on your
federal tax return for the same taxable year
without regard to the federal NOL deduction
(Form 540/540NR, line 13, plus the federal
NOL deduction listed on column C of Schedule
CA (540), Part I, line 21c, or Schedule CA
(540NR), Part II, line 21c.
For taxable years beginning in 2008 and
2009, California suspended the NOL carryover
deduction. Taxpayers continued to compute
and carryover NOL during the suspension
period. However, corporations with taxable
income or individuals with net business
income of less than $500,000, or with disaster
loss carryovers were not affected by the NOL
suspension rules.
The carryover periods for any NOL or NOL
carryover, for which a deduction is disallowed
because of the 2008 - 2011 suspension, are
extended by:
•	 One year for losses incurred in taxable
years beginning on or after
January 1, 2010, and before
January 1, 2011.
•	 Two years for losses incurred in taxable
years beginning before January 1, 2010.

FTB 3805Z Booklet  2018  Page 9

•	 Three years for losses incurred in taxable
years beginning before January 1, 2009.
•	 Four years for losses incurred in taxable
years beginning before January 1, 2008.
For more information, get form FTB 3805Q, Net
Operating Loss (NOL) Computation and NOL
and Disaster Loss Limitations - Corporations,
or form FTB 3805V, Net Operating Loss (NOL)
Computation and NOL and Disaster Loss
Limitations - Individuals, Estates, and Trusts.
For taxable years beginning in 2002 and 2003,
California had suspended the NOL carryover
deduction. Taxpayers continued to carryover
an NOL during the suspension period. The
carryover period for suspended losses was
extended by two years for losses incurred
before January 1, 2002, and by one year for
losses incurred on or after January 1, 2002,
and before January 1, 2003.
The business cannot generate NOLs from
activities within the EZ before the first taxable
year beginning on or after the date the EZ is
officially designated.
Limitation
An EZ NOL carryover deduction can only offset
business income attributable to operations
within the EZ.
Election
If you elected and designated the carryover
category (general or specific, EZ or LAMBRA
NOL) on the original tax return for the year of
a loss, file form FTB 3805Z for each year in
which an EZ NOL deduction is being taken. The
election is irrevocable.

If you elected the EZ NOL deduction, you are
prohibited by law from carrying over any other
type of NOL, relating to EZ activities, from
this year.
Alternative Minimum Tax
For taxpayers claiming an EZ NOL carryover
deduction, use Schedule P (100, 100W, 540,
540NR, or 541) to compute the NOL for
alternative minimum tax purposes.
S Corporations
EZ NOLs incurred prior to becoming
an S corporation cannot be used
against S corporation income. See IRC
Section 1371(b).
However, an S corporation is allowed to deduct
an EZ NOL incurred after the “S” election is
made. An S corporation may use the NOL
carryover as a deduction against income
subject to the 1.5% entity-level tax (3.5% for
financial S corporations). The expenses (and
income) giving rise to the loss are also passed
through to the shareholders in the year the loss
is incurred.
Combined Report
Corporations that are members of a unitary
group filing a combined report must separately
compute loss carryover for each corporation
in the group (R&TC Section 25108) using their
individual apportionment factors.
Unlike the NOL treatment on a federal
consolidated tax return, a loss carryover

for one member included in a combined
report may not be applied to the intrastate
apportioned income of another member
included in a combined report.
Water’s-Edge Taxpayer
For any water’s-edge taxpayer, R&TC
Section 24416(c) imposes a limitation on
the NOL deduction if the NOL is generated
during a non-water’s edge tax year. The NOL
carryover is limited to the lesser of the NOL
or the re-computed NOL. The re-computed
NOL carryover is determined by computing
the income and factors of the original
worldwide combined reporting group, as if
the water’s‑edge election had been in force for
the year of the loss. R&TC Section 24416(c)
serves as a limitation. If this section applies,
the NOL carryover for each corporation may
only be decreased, not increased.

Instructions for Worksheet III –
Computation of NOL Carryover
and Carryover Limitations
Individuals, exempt trusts, and corporations
with current year income and prior year EZ
NOL carryover complete Worksheet III.
An EZ NOL carryover deduction can only offset
business income attributable to operations
within the EZ. Use this worksheet to compute
the NOL carryover deduction for individuals,

 Worksheet II  Income or Loss Apportionment – Enterprise Zones
Section A  Income Apportionment
		
Use Worksheet II, Section A, if your business has net income	
from sources within and outside an EZ.	
PROPERTY FACTOR
1	 Average yearly value of owned real and tangible personal
property used in the business (at original cost). See
instructions for more information. Exclude property not
connected with the business and the value of construction
in progress.
	Inventory .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	Buildings  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Machinery and equipment  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Furniture and fixtures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Delivery equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
	Land .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Other tangible assets (attach schedule) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Rented property used in the business. See instructions .  .  .
	 Total property values  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
PAYROLL FACTOR
2	 Employees’ wages, salaries, commissions, and other
compensation related to business income included in
the tax return.
Total payroll  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
3	 Total percentage – sum of the percentages in column (c)  .
4	 Average apportionment percentage – 1/2 of line 3.
Enter here and on form FTB 3805Z, Side 1, line 2  .  .  .  .  .  .  .

Page 10  FTB 3805Z Booklet  2018

(a)	
Total within	
California	

(b)	
Total within an	
EZ	

(c)
Percentage within an EZ
column (b) ÷ column (a)

 Worksheet II  Income or Loss Apportionment – Enterprise Zones (continued)
Section B  Income or Loss Apportionment
Part I  Individual Income and Expense Items. See instructions.
		
	(a)	
			
Amount	
				

(b)	
Percentage of time providing	
services in the EZ	

(c)
Apportioned amount
column (a) x column (b)

 1	Wages  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 2	 Employee business expenses .  .  .  .  .  .  .  .
  3	 Total. Combine line 1, column (c) and line 2, column (c) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Part II  Pass-Through Income or Loss. See instructions.
		
(a)	(b)
		
Name of entity	
Distributive or pro-rata share of business income or loss apportioned to the
			
EZ from Schedule K-1 (100S, 541, 565, or 568) including
			
capital gains and losses

 4

 5	 Total. Add line 4, column (b) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Part III  Taxpayer’s Trade or Business. See instructions.

		
	(a)	
			
Business income	
			
or loss	

(b)	
Apportionment percentage	
for the EZ	

(c)
Apportioned income or loss
column (a) x column (b)

 6	 Schedule C or C-EZ  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 7	 Schedule E (Rentals) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 8	 Schedule F .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 9	 Other business income or loss .  .  .  .  .  .  .  .
10	 Total. Add line 6 through line 9, column (c) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
		
	(a)	
			
Business gain	
			
or loss	

(b)	
Apportionment percentage	
for the EZ	

(c)
Apportioned gain or loss
column (a) x column (b)

11	 Schedule D .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
12	 Schedule D-1 .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
13	 Total. Add line 11, column (c) and line 12, column (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	
14	 Total. Add line 3, line 10, and line 13, column (c), and line 5, column (b) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
exempt trusts, and corporations to reduce
current year business income from the EZ.
Line 1 – See Part II for a discussion of
business and nonbusiness income.
Form 540 and Form 540NR filers:
Be sure to include casualty losses, disaster
losses, and any business deductions reported
on federal Schedule A as itemized deductions.
Exception: If you elected to claim part or all
of your current year disaster loss under IRC
Section 165(i)(1) on prior year’s tax return,
do not include the amount of loss that was
claimed on prior year’s tax return in your
current year business income for the EZ.
Line 2 – In modifying your income, deduct
your capital losses only up to your capital
gains. Enter as a positive number any net
capital losses included in line 1.

Line 3 – Corporations must reduce income by
the disaster loss deduction and the deduction
for excess net passive income.
Line 6 – This is your modified taxable income
(MTI). You may reduce this amount by your
EZ NOL carryover deduction. Your EZ NOL
carryover deduction may not be larger than
your MTI. If your MTI is a loss in the current
year or if it limits the amount of NOL you may
use this year, carry over the NOL to future
years.
Line 7 – Enter the amount from line 6 in line 7,
column (d). If this amount is zero or negative,
transfer the amounts from line 8b through
line 8q, column (b) to column (e), and go to
line 9.
Line 8a through Line 8q – Enter the amounts
on line 8a through line 8q as positive numbers.

In column (c), enter the smaller of the amount
in column (b) or the amount in column (d)
from the previous line.
In column (d), enter the result of subtracting
column (c) from the balance on the previous
line in column (d).
In column (e), enter the result of subtracting
the amount in column (c) from the amount in
column (b), as applicable.
Example:
(b)

(c)

(d)

(e)

Carry‑
over from
prior year

Amount
deducted
this year

Enterprise
zone NOL
carryover

$ 500

$ 500

Balance
available to
offset losses
$5,000
$4,500

$ 0

FTB 3805Z Booklet  2018  Page 11

Line 9 – Total the amounts in column (b)
and column (e). Enter the totals from line 9,
columns (b), and (e) on form FTB 3805Z,
Side 1, line 3a and line 3c, accordingly.
Your EZ NOL carryover deduction