State tax credits resold

WESTFIELD – When State Rep. Donald Humason (R-Westfield) voted in favor of offering tax credits to film companies, he had no idea they could be sold to give big corporations a break. However, that is what’s happening in Massachusetts.
The Boston Globe reports that at least 96 percent of the $265 million in tax credits used to attract movie and television productions to Massachusetts were sold by the film companies between 2006 and 2010, according to the state Department of Revenue.
Companies and individuals use tax credits to reduce tax bills. For example, a $1 million credit reduces a company’s tax payment by that amount.
But most film companies do not owe enough in state income taxes to use the credits, so they typically sell them.
A production company that is awarded $10 million in tax credits might sell them to a broker for $8.7 million. The broker then sells the credits to a financial company that owes state incomes taxes for a bit more – say for $9 million, earning the broker a $300,000 profit. The financial firm can then claim the full $10 million in credits on its tax return, saving $1 million.
The practices were highlighted when prosecutors charged a Cape Cod filmmaker, Daniel Adams, with fraudulently obtaining $4.7 million in credits for the films “The Golden Boys’’ and “The Lightkeepers.’’
Prosecutors said Walmart Stores Inc. and Bank of America Corp. bought the credits through a broker to reduce their taxes.
Humason said he would not have supported the bill if he knew it was actually costing the state money.
“I supported it because I thought it would be great to bring back film companies that have made movies in Massachusetts , but it got too expensive,” said Humason. “I didn’t know they could sell tax credits and now I wonder if other industries do that.”
“I intend to find out more about that,” said Humason yesterday while en route to Boston for the first session of the House in 2012.
Humason said a tax credit is meant to be an incentive for companies to do business here.
“The thought was that they would make movies here, use local people and spend money locally,” Humason said. “And, it has been helpful because more movies, TV shows and commercials are being made in Massachusetts, so that is good.”
However, he said if the companies are turning around and selling the tax credits to large corporations, the state is losing money.
Humason said the answer could be reducing the overall state tax instead of giving credits.
“We could look at lowering the tax rate altogether and get it back to five percent where it belongs,” Humason said. “When the income tax was increased from five to 6.25 percent it was because of ‘an emergency’ and is now at five percent. We’re about to see a small decrease – like $7 a year – but it should be back to five percent. We can raise taxes overnight, but we can never get them back down again.”
Humason said he will look further into the selling of tax credits and bring it up in the House.
According to The Boston Globe, the companies do not report how much they earn in Massachusetts or pay in taxes in the state. The state Department of Revenue generally does not disclose how much individuals and corporations pay in taxes because of confidentiality laws. Bank of America declined to comment. Walmart said it “makes every effort’’ to comply with state laws.

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