State auditor finds improper movie tax credits paid

    Iowa State Auditor David Vaudt released an audit in late October of the Iowa Film Office. The auditor uncovered that 80 percent of the film office?s tax credit program was granted improperly ? almost $26 million of the $32 million given out. The Film, Television and Video Project Program, as it was formally called, ran from 2007 until 2009, when Gov. Chet Culver suspended it after reports of impropriety. The Iowa Film Office is a subdivision of the Iowa Department of Economic Development. 

    A Washington firm was mentioned in Vaudt?s report ? Iowa Film Production Services. Iowa Film Production Services submitted an application to produce a motion picture called ?Splatter? in the summer of 2009.

    Iowa Film Production Services reported expenditures of nearly $10 million. In accordance with the rules laid down by the Iowa Film Office, a company could be reimbursed for 25 percent of its qualified expenditures. Then, after subtracting its qualified expenditures, it was eligible for another 25 percent reimbursement for its investment. Vaudt calculated that the Washington firm should have received $470,000 in tax credits, whereas the Iowa Film Office granted 10 times that amount ? $4.8 million. Vaudt found that only 19 percent of the expenditures listed as qualified were indeed qualified.

    Iowa Film Production Services also produced a film called ?The Offering.? Again, Vaudt found a large discrepancy between what the Iowa Film Office granted in tax credits and what was allowable under administrative rules. Vaudt calculated that only $140,000 should have been given in tax credits for ?The Offering,? instead of the $1.6 million that the Iowa Film Office reported. 

    The largest segment of the erroneously categorized qualified expenditures was in the form of ?deferred payments.? For Splatter, Iowa Film Production listed $6.3 million of expenditures as deferred payments ? more than half the film?s expenditures. Vaudt wrote that only actual payments could count as qualified expenditures and not simply ?a promise to pay.? In the case of Splatter, the deferred payments were additional payments that a cast or crew member would receive if the film sold for a certain amount of money, which in some contracts was $9 million. Vaudt wrote that the Code of Iowa and the Department of Revenue?s administrative rules make clear that deferred payments don?t count as qualified expenditures, and that those rules were in place at the beginning of the program. As a result, Vaudt refused to count any deferred payments in his calculation of qualified expenditures. 

Iowa Film Production Services could not be reached for comment.

For the full story, see the Nov. 9 edition of The Washington Evening Journal