A state program aimed at stimulating job growth and business investment in areas where income levels are below the state average is generating hundreds of thousands of dollars in savings for companies here and is the most active of six such programs in Washington.


Through whats called the 12-year-old community empowerment zone (CEZ) program, such Spokane-area companies as Itronix Corp., Hollister-Stier Laboratories LLC, and Huntwood Industries are already cashing in on incentives to expand and then hire new employees who live in a low-income empowerment zone thats mostly within the city of Spokane.


Companies that make capital improvements in Spokane County but outside the empowerment zone, such as Huntwood, are eligible for tax savings if they hire at least one new employee living within the zone for up to every $750,000 they spend on improvements.


Companies that build or remodel, or make certain equipment upgrades within the zone, such as Itronix or Hollister-Stier, which has a $2 million warehouse expansion project for which its already receiving about $174,000 in CEZ tax savings, qualify for the same tax-deferral benefits. Plus theyre eligible for additional business and occupation (B&O) tax credits, when applicable, when they hire new employees from within the zone.


The CEZ program was created by the Washington Legislature in 1993 to ease the burden from the states B&O tax and its relatively high sales tax, says Gary Grossman, a taxpayer information specialist for the Washington state Department of Revenue. The B&O tax is applied on gross income. The program, an expansion of an earlier rural-business stimulation program, created five CEZs initially, Grossman says.


Spokane had the option to create a CEZ in 1993, but didnt do so until 2001.


Since Spokanes CEZ was launched as the sixth such zone in the state, companies that have participated in the program here have made $38 million in capital investments and, as a result, have earned about $3.2 million in tax savings, says Stan Key, industry manufacturing manager for the Spokane Area Economic Development Council, which manages the program with the city of Spokane.


On the basis of the total number of tax deferral and B&O applications received, Spokane is the most active CEZ in the state, says Grossman.


Through the program, Spokane-based Itronix is projected to receive as much as $812,000 in tax savings. The company plans to hire 15 additional employees, 12 of them from the empowerment zone, when it moves into its new $9.5 million, 107,000-square-foot building being constructed in Spokane Valley, says Key.


Because that building will be owned by the developer, Pinecroft LLC, of Spokane Valley, rather than Itronix, the tax savings involved with that capital investment will come from another part of the CEZ program that provides for rent breaks equal to the sales tax benefit the building owner receives.


Only companies involved in manufacturing, software development, and research and development that produces a product are eligible for the program.


Created by the state in accordance with census figures that track low-income communities, the Spokane CEZ zone stretches roughly to Francis Avenue on the north, 17th Avenue to the south, Havana Street to the east, and Summit Boulevard near High Bridge Park to the west, Key says.


To qualify for the B&O tax benefit, any size company that is located within the empowerment zone must first add to its work force by at least 15 percent by hiring people who live within the zone.


The B&O benefit works better for smaller companies, says Key, noting that every new employee hired by a startup business would qualify, and that small companies can reach the percentage requirement with fewer hires. Hollister-Stier, a larger drug manufacturer here, for instance, hasnt reached that 15 percent threshhold with workers from within the zone in a one year period.


The B&O tax credits can be significant.


For each qualifying employee with an annual salary of $40,000, including benefits, the company receives a $4,000 tax credit. Each employee added below that salary level earns the company a tax credit of $2,000.


Key says that by constructing a new $15 million factory in Liberty Lake and hiring new employees from within the Spokane empowerment zone, Huntwood Industries has earned $127,500 in tax savings through the program.


The savings to the companies dont come in the form of checks from the state, but rather from not having to pay taxes they otherwise would owe.


Hired employees from the zone, or their replacements, must maintain their positions for at least 12 consecutive months to meet the programs criteria, and the deferral of taxes only becomes a 100 percent savings to the participating company after seven years.


If within three years a participating company shuts its doors or in some way alters its operations to no longer fit the guidelines of the program, all deferred taxes and B&O credits must be repaid immediately, Key says. The required repayment decreases incrementally for companies that fall out of compliance in years four, five, and six, with the owed tax completely forgiven after seven years.


Its pretty amazing that this program even exists, says Michael Senske, president and CEO of Pearson Packaging Systems, of Airway Heights. Its just amazing how much tax incentive there is for each person.


Senske says that Pearson would be doing about $500,000 of loading dock renovation work with or without the CEZ program, but because of the program, has hired more than its minimum quota of at least one person who lives within the empowerment zone and will receive $40,000 to $50,000 in tax savings this year alone. He expects the company to reap much greater benefits next year, when it expects to spend as much as $2 million on capital investments.


The $50,000 benefit is great. It perks our ears up, and goes straight to the bottom line, says Senske.


Pearson, which employs about 250 workers, is committed to the program, and already has hired five to 10 people who live in the empowerment zone.


Hollister-Stier, as well, could benefit even more next year, having recently announced it will add a second $5 million freeze-drying system to its production facility. By hiring seven new employees out of the empowerment zone when it constructs the system, it would receive maximum tax savings.


Key says that in 2004, some 13 companies in Spokane County were approved for the tax-savings program, and 14 companies located within the empowerment zone qualified for the B&O tax credit. He says applications are channeled through the state Department of Revenue.


A lot more companies in Spokane could easily qualify for this program and receive the benefits, Senske says.