CHARLESTON, W.Va. — The state Legislative Auditor is recommending the elimination of film tax credits in West Virginia.

If the film tax credit program is continued, the Legislative Auditor recommends suspending the program until the program’s issues can be corrected.

“The film tax credit has produced minimal economic benefit to West Virginia; therefore, the Legislative Auditor recommends termination of the tax credit and the film office,” staff for the Legislative Auditor wrote in a report presented to legislators Sunday afternoon.

The Legislative Auditor also concluded that deficiencies in business practices have led to the collection of revenue without statutory authority, incomplete records and misleading, inflated reports.

Legislative Auditor staff cited some questionable expenditures that were allowed to count as qualifying expenditures. Some egregious examples include the depreciation of paint and paper towel holders.

Members of the Post Audits committee, made up of leadership from both legislative houses, listened to the report on Sunday afternoon.

MORE: Read the report about the West Virginia film tax credit.

The West Virginia Film Industry Investment Act was established in 2007 to encourage economic development through motion picture and other commercial film and audio projects.

The act allows eligible film production companies to receive nonrefundable tax credits for direct and
postproduction expenditures made in West Virginia or incurred with a West Virginia vendor. The credits also may be transferrable.

The West Virginia Film Office was cut from the state budget last year, but administrative duties were passed on to the state Division of Tourism.

File

Chelsea Ruby

“I don’t disagree with this audit. I actually agree with every finding in the audit. This audit has actually been very helpful to me as I’ve taken over this job,” said Tourism Commissioner Chelsea Ruby, who addressed legislators in response to the audit.

“I”m not surprised with these findings because they’re in line with what I’ve been seeing.”

West Virginia’s film tax credit program competes with the majority of states nationwide to attract film productions, including all five surrounding states.

Ruby said the state’s tax credit is much smaller than the most competitive states, particularly Georgia. She said many of the credits have gone to local productions, including some associated with government, including for state Lottery and West Virginia Housing Development Fund.

“What we see here is a classic race to the bottom,” she said.

She said her office considered defending the tax credit but proposing changes. But, after a review of the audit and a conversation with Commerce Secretary Woody Thrasher, she said, the Justice administration decided not to defend the tax credit.

“I’m not saying it was a bad idea when it was put in place. This report shows that this program just really isn’t doing that at this point,” Ruby said.

The economic impact of the film tax credit program has been about $8.6 million over its 10-year existence, or less than $1 million annually on average, auditors wrote. The Legislative Auditor concluded the economic benefit of the program to the State to be minimal.

Furthermore, auditors wrote, right now West Virginia lacks a strong incentive program, a skilled workforce, and the infrastructure needed to attract large film productions.

Auditors concluded that out-of-state companies are the top recipients of film industry investment tax credits. In particular, they wrote, three production companies received 69 percent of all issued tax credits.

Film production companies incurred over $49 million in direct and postproduction expenditures, the auditors wrote. But wages paid to out-of-state residents constituted about $21 million of the expenditures.

Auditors also focused on business practices related to the film tax credit.

The Film Office administered an economic development program issuing millions of dollars in tax credits per year, but the office’s recordkeeping practices are outdated and unreliable, auditors concluded.

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