Christine Harbin
[NOTE: Since the original publication of this blog entry, additional information has been released about the filmmakers accused of purchasing personal vehicles using Iowa's film tax credit program. From the Iowa Republican:
Yesterday we learned the names of the two movie producers who used the Iowa Department of Economic Development’s film tax credits to purchase luxury automobiles. Bruce Isacson, who filmed the movie “South Dakota,” apparently owns a 2008 Range Rover that cost $61,000. Donald Borchers, who remade “Children of the Corn,” owns a $68,000 Mercedes.

We would like to emphasize that these are separate filmmakers from those involved in production of the film The Scientist, also referenced in the blog entry below.]

Three companies and three individuals that were involved in the production for the film The Scientist have been charged with inflating and falsifying expenses in order to obtain more than $1.85 million in tax credits through Iowa's film tax credit program.

According an article in the Des Moines Register:
Weiner Runge, a 44-year-old film-maker and resident of St. Louis Park, Minn., is accused of a felony for reportedly inflating values of expenses on applications to the state for tax credits. Over the course of the project, Weiner Runge inflated the cost of making the film from $767,250 to almost $1.8 million, according to the Attorney General’s office. [...]

Saunders, 37, [...] provided free services that were used to claim $2.5 million in credits. Saunders also faces felony theft charges.

The following are specific examples of how they are accused of inflating the cost of the services and products that they consumed under the guise of the film tax credits.
Court records indicated Maximus Production Services filed claims for rental equipment that were significantly inflated, such as $225 each for a push broom, a hand broom, a metal rake, a pick axe and a sledge hammer, and two shovels for $450.

The invoices also included various sizes of step ladders that ranged from $900 each up to $1,125, and a 24-foot extension ladder reported to have been rented for $1,350.

As for the most egregious misuse of Iowa's film tax credits, filmmakers involved in two other productions bought a Mercedes and a Land Rover for themselves. From the Des Moines Register again:
[S]tate officials found [movie]-makers had used the tax credit program to purchase two luxury vehicles worth more than $60,000 and other items later put to personal use.

If these filmmakers purchased their vehicles in Minneapolis, the combined state and county sales tax rate would have been 7.375 percent if not for the tax credit exemption. That means that the filmmakers avoided paying more than $8,850 in sales taxes on their combined vehicle purchases. This is the amount of money that the film producers saved buying the vehicles in Iowa under the guise of a film production, and it represents lost sales tax revenue for Minnesota. Filmmakers who live in Hollywood, Calif., would have an even greater incentive to buy luxury cars using film tax credits in other states because the combined state and county sales tax rate there is 9.75 percent. For a purchase of $120,000, then, a person would have to pay an additional $11,700 in sales tax.

Supporters of film tax credit programs say that the films have economic and fiscal impacts beyond the amount that the filmmakers spend in the state. We've discussed this concept in a previous post on this blog, in fact. I'd like to pose the following questions to these supporters: How much economic activity does the purchase of a luxury car generate in the state economy? How much extra output does it yield for the state? Will this motivate more people to move to the state? My answers are, in order, "not much," "none," and "no," but I am eager to read their comments.

I worry that Missouri's film tax credit program could be at risk of the same kind of fraudulent activity, because it has a structure similar to Iowa's program. Under both programs, the tax credits are transferable. Iowa has since pulled the plug on its program to scrutinize its accounting, and Missouri would be better off doing the same.

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Christine Harbin

Christine Harbin