Most states offer lucrative tax benefits for firms which locate in Enterprise Zones (EZs). Each state decides which areas qualify for EZ status, and designate local coordinators for the zones. Despite the prevalence of EZs, there has been no systematic research on EZs on a national scale.

Discovery
To address this issue, I have begun a study which examines EZs for all 42 states offering them, and by carefully defining the EZ areas in terms of their exact census tract areas. The first step in the study was to gather data on the zone locations and to plot them using TTS software. Over the last two years I have compiled information on locations and associated benefits for all EZs in the country, as shown in the following map:

In addition to EZs (shown in green), the map shows areas eligible for Targeted Employment Areas (eligible for hiring credits, shown in orange), and Federal Empowerment Zones (eligible for Federal hiring credits, shown in blue). These latter two programs are similar to EZs.

Preliminary Analysis
EZ tax benefits vary widely by state. Typically, benefits include income tax credits for hiring, income tax credits for machinery and equipment (M&E), sales tax exemptions, or combinations of all three.

To show these differences across states, I use the following example. Assume a transportation equipment manufacturer has land, building, and M&E investments of $20m, $100m, and $20m, respectively. Payroll is $20m for 1000 employees. Sales and pre-tax net income are $100m and $8m, respectively. The results, over a six-year investment horizon, are shown in the table below.

The first column shows TAXES COMPANY WILL PAY , which consists of all property taxes, and income taxes after normal credits (including business expansion credits not requiring location in an EZ). As can be seen, the net tax burden varies widely by state. The second column shows TAXES COMPANY WILL PAY IF LOCATED IN AN EZ. These are property taxes, and income taxes after all EZ benefits. The tax burden varies widely by state. More strikingly, in some states the tax burden is cut in half by locating in an EZ. The third column shows jobs generated to state resulting from the new business. They are computed after Type II multiplier effects on the economy. The multipliers were obtained from the Bureau of Economic Analysis (part of the U.S. Department of Commerce), and are for individual states and industries. The multiplier effects reported in the table assume that any jobs created in that particular state are new jobs, i.e., not replacing existing ones. In that sense, they may overstate the employment impact of a new company on a state.