Incentives Watch: Audits Probe Into Whether Credit Programs Are Effective

Whether state tax credits are effective, in terms of costs versus benefits to the state, is a constant source of debate. One way to answer this question is to see how effective the credit is in practice. More and more states are implementing mandatory audit regimes for credit programs to determine their overall effectiveness. States are turning to audits to determine if credit programs are working as planned.

But only 13 states are analyzing their tax credit programs as rigorously as they should be, according to a study released in April by The Pew Center on the States. In fact, only Arizona, Iowa, Oregon, and Washington “have integrated evaluation of their major incentives into the policy process,” notes the study.  The study recommends implementing the credit evaluations into budget and policy deliberations, so legislators can use them to inform their decisions regarding tax credits.

Recently, two states, Alaska and Colorado, conducted audits on some of their own tax credits. The Alaska Division of Legislative Audit recently finished its audit of the state’s film tax credit program. The audit concluded that the credit program is providing a net benefit to the state, reports a Bloomberg BNA Daily Tax Reportarticle. However, the audit found that, during the period studied, Alaska lost $21.2 million in tax credits and generated only $1.2 million in new revenues. In addition, the audit found that a “significant amount” of the program's benefits are realized outside of Alaska , including the bulk of the wages paid in film operations.

Colorado’s Office of the State Auditor conducted an audit of the state’s conservation easement tax credit. The audit concludes that the credit program is effective in encouraging more land conservation and reducing the tax liability of taxpayers claiming the credit. As for whether the credit is effective in terms of a cost/benefit analysis, the audit notes that it is hard to say since the benefits are more difficult to measure than the costs. For more information about the audit, check out this article from the Colorado News Agency.

Connecticut, Delaware, Massachusetts, Mississippi, New Mexico, New York, South Carolina, and Virginia, also offer conservation easement tax credits, according to Bloomberg BNA State Tax Portfolios.

Tax incentive programs aimed at film production are also offered in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin, according to the Bloomberg BNA State Tax Portfolios.

In other developments . . .

New York enacted legislation extending the availability of the brownfield redevelopment tax credits by allowing the credits for remediation certificates issued before Jan. 1, 2016, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

Follow us on Twitter at: @SALTax
Join Bloomberg BNA's State Tax Group on