Film Tax Credit Programs: Lessons Learned From Iowa

In response to recent scandals in Iowa’s film tax credit program, the state auditor’s office released a report about the program. From the Tax Update Blog (via the Tax Foundation’s Tax Policy Blog):

Before the Iowa Film Tax Credit program exploded in scandal in September 2009, the state had granted $31,967,641 in transferable tax credits to filmmakers. Yesterday the State Auditor reported that $25,576,301 were issued improperly — a full 80% of the credits granted.

According to the report, excess tax credit certificates were issued because the recipients did not verify expenditures:

[T]he unqualified expenditures identified included deferred payments, in-kind expenditures, expenditures for which no proof of payment was provided, expenditures which did not directly relate to production, payments to out-of-state vendors/residents and expenditures which were paid but were not supported by documentation.

An additional reason for the improper issuance is that the production companies claimed the credits in a manner that did not meet the requirements of the Code of Iowa:

The Code of Iowa states, in part, the “tax credit shall equal twenty-five percent of the investment in the project, except that the tax credit shall not exceed twenty-five percent of the qualified expenditures on the project.” In addition, the Code of Iowa states, in part, “a taxpayer shall not claim a tax credit…for qualified expenditures for which a tax credit is claimed…” [Film Office manager Tom] Wheeler did not to [sic] reduce the amount claimed for an investment tax credit by the qualified expenditures included in the expenditure tax credit. In addition, Mr. Wheeler did not ensure the investment tax credit did not exceed the project’s total expenditure credit. Instead, Mr. Wheeler calculated the investment tax credit by multiplying the total expenditures by 25%.

This is a teachable moment for Missouri. While officials here are reviewing our state’s targeted tax credit programs, they should study and learn from the successes and failures in other states. A problem with many tax credit programs, including many in Missouri, is that the expenditures are self-reported by the applicants and regularly unaudited. The state government should have the proper controls in place to ensure that taxpayer money is spent as it is intended. Missouri should establish procedures that increase accountability and prevent reporting errors and irregularities, as the report recommends.