TOPIC: Business Tax Credits or Tax Incentive Programs
OFFICE: Auditor
STATE: OK
DATE: 10/18/12
QUESTION / ISSUE: The Oklahoma State Auditor’s office is interested in hearing from other states
regarding business tax credits or tax incentive programs.
1. Does your state offer business tax credits, or business tax incentive programs?
2. Does your state audit office audit those tax credits, or tax incentive programs, and if so, to what
degree?
3. If your state audit office does audit tax credit, or tax incentive programs, what mechanism is in
place to cover the cost of the audits?
State
Georgia
Comments
Pursuant to your request, I am attaching two reports completed by our Performance
Audit Division on Corporate Income Tax Credits in Georgia. The first report was
completed in 2006. The follow-up report was completed in 2009.
Exhibit 1 on page 4 of the 2006 report includes a description of 13 of the corporate
tax credits that were in scope for this engagement. At the time of this report, there
were a total of 24 corporate tax credits in Georgia.
The Georgia Department of Audits and Accounts operates off of an annual
appropriation from our General Assembly.
Tax Credit1.pdf
Kansas
Minnesota
internal_controls_ov
er_corporate_income_tax_credits[2].pdf
1. Yes, Kansas offers business tax credits.
2. No, we don’t audit those credits. We did a series of three audits on this topic in
2010, but there is no regularly scheduled audit of tax credits. In fact, one of the
audit findings was that “Kansas lacks a strong system for reviewing and
evaluating tax credits,”
3. N/A
1. The Job Opportunity Building Zone (JOBZ) initiative provides local and state tax
exemptions to qualified companies that start up or expand in targeted areas of
Greater Minnesota.
http://www.positivelyminnesota.com/Business/Financing_a_Business/TaxFree_Development_(JOBZ)/JOBZ_Overview.aspx
http://www.house.leg.state.mn.us/hrd/issinfo/jobztax.htm
There are 10 job zones comprising more than 29,000 acres in about 325
communities. Each zone includes acres for primarily manufacturing, valueadded, or high paying service businesses.
The program promotes development in places that are already poised for
business growth and have adequate infrastructure in place. It also seeks out
places where favorable conditions exist for restoring productivity to under-used
and unproductive properties through development, redevelopment, reclamation
or recycling.
The JOBZ program offers substantial tax savings. Businesses could qualify for
the following the tax exemptions by expanding or locating within one of the Job
Opportunity Building Zones:
Business Tax Credits or Tax Incentive Programs 1
State
Comments
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Corporate franchise tax
Income tax for operators or investors, including capital gains tax
Sales tax on goods and services used in the zone if the goods and services
were purchased during the duration of the zone
Property tax on commercial and industrial improvements but not on land
Wind energy production tax
Employment tax credit for high paying jobs
Actual benefits are determined by the exact nature of your business expansion,
as well as its effective date. JOBZ benefits accrue from the date that a business
qualifies and continue until December 31, 2015, when the JOBZ program is
scheduled to expire.
Eligibility
Businesses that startup or expand in a zone or relocate from other states or
from elsewhere in Minnesota are eligible for the incentives if they meet certain
job and wage goals.
2. The Minnesota OSA was given the authority to provide oversight for JOBZ in
2005. However, funding was not provided. Funding was secured in 2008 in the
form of a very small state general fund appropriation. The JOBZ program had a
lot of issues as originally designed. The state overhauled the program after the
Legislative Auditor did a program review of JOBZ. It went from being
administered at the local level to the state level. Therefore, the MN OSA was
not able to oversee the program because we oversee local governments and
the Office of the Legislative Auditor oversees state government. We have been
working to amend the statute to transfer the duty to the OLA.
Missouri
3. A state general fund appropriation.
1. Yes, see Chapter 620 of the Revised Statutes of Missouri (RSMo), available on
the Web site http://www.moga.mo.gov, and the Department of Economic
Development Web site page
http://www.ded.mo.gov/Ded/TaxCreditSummaries.aspx.
2. Yes, Section 620.1300, RSMo, states:
A cost benefit analysis shall be prepared to evaluate the
effectiveness of all tax credit programs, as defined by section
135.800, and all programs operated by the department of economic
development for which the department approves tax credits, loans,
loan guarantees, or grants. Each analysis shall be conducted by
the state auditor, and shall include, but not be limited to, the costs
for each program, the direct state and indirect state benefits and
the direct local and indirect local benefits associated with each
program, the safeguards to protect noneconomic influences in the
award of programs administered by the department, and the
likelihood of the economic activity taking place without the program.
The Missouri SAO has taken a risk-based approach to auditing the state's tax
credit programs, focusing on the larger dollar programs for the most part. Audit
reports on tax credit programs are available on the Web site page
www.auditor.mo.gov/AuditReports/AudRpt.aspx?c=Tax Credits.
Business Tax Credits or Tax Incentive Programs 2
State
Nebraska
North Dakota
Vermont
Comments
3. The audit costs are paid from the office's general appropriations and are not
billed to the agency or program.
Nebraska does have business incentive tax credits. We do an overall audit of our
Department of Revenue but have not done a specific audit on the tax credit
programs. Our audit work is covered by general tax revenues appropriated to my
agency.
1. Yes
2. No.
1. Vermont offers business tax credit and tax incentive programs. See link to
website describing the tax credit/incentive programs
http://accd.vermont.gov/business/relocate_expand/capital/incentives#taxcredit
2. The two programs that the Vermont State Auditor’s Office (SAO) is required to
audit are the Vermont Economic Growth Incentive (VEGI) program and the Tax
Increment Financing (TIF) program. Greater detail on VEGI may be found here
http://accd.vermont.gov/business/start/vegi Greater detail on TIF may be found
here http://accd.vermont.gov/strong_communities/opportunities/funding/tif.
Statute does not specify the type of audit required nor the focus on the audit,
however SAO is required to audit the VEGI program every two years and each
active TIF district every four years.
Washington
(Leg Auditor)
3. SAO manages an internal service fund and bills the cost of all GAGAS audits
via this mechanism. However, starting in 2013, our office is statutorily required
to bill municipalities directly for the cost of the TIF district audits (i.e. we will bill
the municipality with the TIF district that we are auditing).
Our state does offer these types of tax incentives. My office has an ongoing
assignment to review them with a performance audit perspective, i.e., what policy
purposes are they meant to achieve, and are they doing so? We have this
assignment for all tax incentives, not just business related ones. We usually look at
about 20-25 per year. We don’t have a dedicated fund source for this per se. My
office receives an appropriation from our state’s general fund for all our
performance audit work, of which this is one assignment.
Here is our latest report. You will find the section evaluating the High Tech R&D
incentives particularly on point as a business incentive evaluation (pages 85-100).
http://www.leg.wa.gov/JLARC/AuditAndStudyReports/2012/Documents/2012TaxPr
eferencesPreliminaryReport.pdf
Also, here is the site that has information on all of our work to date (since 2007).
http://www.citizentaxpref.wa.gov/
Finally, if you haven’t discovered this already, the Pew Center for the States did a
recent review of the extent to which all the states are evaluating economic
development tax incentives. It is worth looking over, as it has a good discussion of
the challenges and best practices. These are difficult evaluations to pursue.
http://www.pewstates.org/research/reports/evidence-counts-85899378806
Business Tax Credits or Tax Incentive Programs 3