Attorney general, auditor to investigate abuse of film tax credits

Gov. Chet Culver has asked Iowa Attorney General Tom Miller and Iowa Auditor David Vaudt to assist in a probe of a state tax credit program designed to assist the movie industry that has come under scrutiny in recent days.

Auditor David Vaudt, left, and Attorney General Tom Miller will assist in the investigation of the film credits program.

“This is not about harming the growing film and television industry in Iowa, but about protecting public funds and the best interest of Iowans,” Culver said in a statement. “I am very troubled by reports of the lack of oversight and accounting procedures of tax credits under this program. My first priority on this issue is to the taxpayers of Iowa, and I know that Attorney General Miller and Auditor Vaudt will help us to quickly identify changes that need to be made and how we can best move forward.”

In a letter to Miller and Vaudt, as well as to Mark Schuling, director of the Iowa Department of Revenue,  Culver asked for a review of the film tax credit program, and to provide advice and recommendations on how the program can be improved in a way that meets the intent of the legislation which created the program and protects the interests of Iowa taxpayers.

Last week allegations of misconduct surrounding the tax credits, known officially as the Film, Television and Video Promotion Program, led Gov. Culver to suspend the program. An internal audit of the program found that credits were not used properly. For instance, some credits were used to purchase luxury vehicles (a Mercedes and a Land Rover) that were not used directly on the film and the amount of credits claimed was the full purchase price rather than the lease cost during the project. The audit found numerous irregularities, ranging from substandard reporting of how credits were used to using venders who reside outside of Iowa.

The allegations also caused the director of the Iowa Department of Economic Development, Mike Tramontina, to resign and the state’s film manager, Tom Wheeler, to be placed on paid administrative leave.

Below is the letter Culver sent to the attorney general, auditor and Department of Revenue Monday morning:

September 21, 2009

Thomas J. Miller
Attorney General of Iowa
Hoover Building
Des Moines, IA  50319

David Vaudt
State Auditor
State Capitol
Des Moines, IA  50319

Mark Schuling
Director, Department of Revenue
Hoover Building
Des Moines, IA  50319

Dear Attorney General Miller, Auditor Vaudt and Director Schuling:

By this letter I seek the assistance and review by your respective offices of the operations of the Iowa Department of Economic Development’s (IDED’s) Film, Television and Video Project Promotion Program and your recommendations as to how the administration of that program can be improved to assure that the Iowa General Assembly’s legislative intent is carried out and that the interests of Iowa’s taxpayers are fully protected.

As you may know, this program was originally established by the Iowa General Assembly under Iowa Code section 15.393.  Under it, projects registered with IDED may qualify certain expenditures for tax credit certificates.  The tax credit is for 25% of the qualified expe3nditures.  A film investment tax credit equal to 25% of the qualified investment in a film project is also available.

In 2009, the Iowa General Assembly passed two bills related to the film credit.  Senate File 480 expanded the credit to include compensation for the principal director, principal producer and principal cast members as long as these persons are Iowa residents or an Iowa-based business.  The bill also made other changes based on the dollar amounts of individual projects.  Senate File 483 created a cap of $185 million on various IDED programs, including the film tax credit.  IDED has allocated $50 million of the $185 million for fiscal year 2009-1020 for the film tax credits.  It has also drafted rules related to this program at Iowa Administrative Code (IAC) 261, Chapter 36.

The Department of Revenue (IDR) processes tax credit certificates claimed on the income tax returns. IDR issues a replacement tax credit certificate if the original tax credit certificate is transferred to another person.  IDR has drafted administrative rules in connection with the film program at IAC 701-52.34.

While there have been many reported benefits resulting from IDED’s implementation of this program, our office very recently learned that there have been insufficient procedures in place to assure a full and accurate accounting of expenditures made to enable persons to qualify for tax credits under the program.   A memorandum outlining program administrative deficiencies issued by former IDED Director Michael L Tramontina is enclosed for your information and review.

Until all reasonable questions about the administration of this program are answered, I have directed IDED’s Board of Directors that no further schedules of qualified expenditures be approved nor any further tax credit certificates be issued.

I seek the review, advice and recommendations of your respective offices as to how this program can be improved and how pending issues can be resolved efficiently and effectively, allowing us to move forward in a manner that is consistent with the intent of this legislation and that protects the interests of Iowa taxpayers.

I pledge the full cooperation of my Administration in this effort and look forward to working in a productive manner with each of you with respect to these matters.

Sincerely,

Chester J. Culver
Governor of Iowa