State to question tax credits

The state says the investigation will focus on high-tech fraud.
Thursday, November 13, 2003 | 12:00 a.m. CST; updated 5:34 p.m. CDT, Thursday, July 17, 2008

JEFFERSON CITY — The Missouri Attorney General’s office said Wednesday it is investigating allegations that taxpayer dollars are paying for equipment for businesses that exist only on paper.

Investigation on "phantom" businesses

“We will investigate this matter without fear or favor,” said Ted Ardini of the Attorney General’s office. He made the announcement to the Joint Committee on Tax Policy. The investigation of these “phantom” businesses is focused on the Rebuilding Communities Tax Credit Program, which offers tax credits for Missouri companies purchasing technical equipment such as computers and medical devices. The program provides tax credits for up to 40 percent of the equipment costs for eligible businesses. The program is designed to attract high-tech companies to poor communities.

The St. Louis Post-Dispatch reported Sunday that businesses without employees, addresses or phone numbers have received $2 million worth of tax credits through the program.

Staff and funding lacking in program

The Rebuilding Communities Program is administered by the state’s Economic Development Department. The department’s director, Joe Driskill, testified before the committee that results of an internal review have been turned over to the Attorney General’s office.

Driskill also said the department lacked funding and staff to guard against misuse of tax credits. He also recommended instituting an audit staff in the department for better oversight.

“We had 50 percent more people administering the same number of programs two years ago,” Driskill said. “We were not asleep at the switch, Mr. Chairman.”

However, Committee Chairman and Senate Majority Floor Leader Michael Gibbons, R-St. Louis County, said in an interview Wednesday that more employees might not cure fraudulence. “I think there may be more than just adding employees as part of that solution,” he said.

Possible private firm to conduct audit

Gibbons also raised the possibility of external, private firms conducting the audits of the Economic Development Department.

Gibbons said his committee would be “very interested” in the Attorney General’s investigation.

“It sure smells bad,” he said. “If there’s fraud there ought to be a prosecution. If there’s waste then we need to make changes legislatively.”

The Post-Dispatch reported that 12 companies have received the maximum allowed tax credit this year — $75,000. That would mean they have spent $187,500 on technical equipment. They have received more than $2 million from the state over the past three years.

“As with most programs, there are instances when some people abuse the system,” Driskill testified. “This is not the only time someone has tried to defraud the state of Missouri.”

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