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Iowa Film credits: Strawman LLCs to develop your economy

October 06, 2009

The rules of the Iowa Film Credit ~~looting~~ economic development program required that funds be spent in Iowa to qualify for the credit. When it wasn't enough to pretend to spend money, or to claim credit for the cost of selling tax credits, the filmmakers pretended that the money they spent was spent in Iowa. From the accountant report on the credit issued yesterday:

In certain instances, limited liability companies (LLC's) were established as Iowa-based companies to purchase property and services from in-state and out-of-state companies, as well as labor. By passing these costs through the Iowa-established business, the expenditures were claimed as qualifying Iowa expenditures. However, there were instances where the majority of the purchases of property and labor appeared to have originated from out-of-state sources. In certain instances, we were unable to verify that all of the entities had been established as Iowa based business and/or were registered with the Iowa Secretary of State's office incorporated in Iowa.

In certain films the total amount of expenditures that were run through Pass Through entities exceeds 40% of the total qualifying expenditures, with some totaling more than one million dollars.

In short, they ran expenditures through Iowa strawmen and claimed the credit.

Sure, the filmmakers basically made up $6.7 million of the $64 million or so of expenditures that were awarded the 50 percent state tax credit subsidy. They claimed another $250,000 (at least) just for the cost of marketing the transferable credits, and unknown millions more were run through strawmen. But let's not be hasty. Let's not let a few bad apples screw up the program. Let them eat canapes.

The Tax Update will be on the road and away from the computer most of the day today. To catch up on the fallout on the accountant report on the film credit, and the newly-launched criminal investigation, here are some links:

Tax Policy Blog: Iowa Film Credit Report Reveals More Problems; Criminal Investigation Forthcoming
Des Moines Register: Criminal probe begun into film tax incentives
O Kay Henderson: The “film tax credit" report is out
Ed Tibbetts: Film program scandal in for a long run
Tax Analysts ($link): Review Slams Iowa Film Credit Program; AG Launches Criminal Investigation

Tax Update links:

Coverage of accountant report

Complete film credit coverage

Tags: Corporate welfare.Des Moines Register. Rekha Basu.Economic development.Film accountant report.film credits.harold hill.