State audit says companies abuse generous film tax credit program

A new state report delivered a searing critique of the state’s popular film tax credit, offering up a portrayal of a program with little guardrails or consequences for those who misreport spending or fail to provide required paperwork.

The state’s audit of the 15-year-program, which is often credited with attracting the film industry to Georgia, was released a week before lawmakers return to Atlanta for the new legislative session.

“As Georgia’s largest and arguably most generous credit, the film tax credit must be accompanied by sufficient controls to ensure that production companies are entitled to the credits granted,” the audit says. “Due to control weaknesses, companies have received credits for which they are not eligible and credits that are higher than earned.”

Specifically, companies or individuals with a tax liability likely claimed millions of dollars in tax credits for expenses that either originated outside of Georgia, were not actually related to production or were excluded by state law, according to the report.

The report lays the groundwork for potential talks over whether to tighten up the costly program at a time when legislators are set to weigh difficult budget cuts. Georgia granted $915 million in tax credits in 2017, up dramatically from $407 million four years earlier.

The state program offers up to a 30% income tax credit for film companies that spend at least $500,000 on qualified productions. The credits are usually sold to Georgia taxpayers, since the production companies often have little state income tax liability.

Georgia is among the 32 states that offer a film incentive but one of just a few states that do not require an audit of each project. The new report suggests state lawmakers change that. Today, audits are mostly performed at the request of the recipient – who can then sell the audit-backed credits at a premium, according to the report.

“Deficiencies in the credit’s administrative controls and the significant financial benefit provided by the credit create an environment ideal for fraud,” the report said.

And while other states have uncovered fraud in their programs, the state Department of Revenue has not opened a single criminal fraud investigation into any recipient, according to the report.

“Based on the money and opportunities available in Georgia’s program, there is no reason to believe that it is free of fraud,” the report said.

Gov. Brian Kemp recently said he has not ruled out changes that would rein in the cost. His spokesman said Tuesday that the governor’s office was still reviewing the audit. As a candidate, Kemp campaigned on preserving the tax break.

The film industry quickly rallied to defend a program that proponents note brought a new industry to Georgia.

Kelsey Moore, executive director of the Georgia Screen Entertainment Coalition, said in a statement Tuesday that her group is committed to working with state officials to ensure “the right processes are in place so that the credit works as intended.”

“The credit has brought billions in investment and thousands of high-paying jobs,” Moore said. “Georgia’s investment in the film industry is paying off and we’re primed for explosive growth over the next decade if the state maintains its current policy.”