Tax Credit Accountability

by Michael R. Allen

The Show-Me Institute’s research on the Missouri Distressed Areas Land Assemblage Tax Credit raises questions about the Department of Economic Development (DED) rules for usage of that credit. One immediate contrast is the state Historic Rehabilitation Tax Credit, which has increased reporting requirements in recent years to maximize accountability and state regulation. DED ensures that users of the historic rehab tax credit have to account for every dollar claimed.

For one thing, projects using the historic rehab tax credit have to receive preliminary approval from DED before work can commence. This requires listing of buildings in the National Register of Historic Places before an application can be made. Then it requires submission of a detailed scope of work that is reviewed by DED as well as State Historic Preservation Office (SHPO) staff. This review must include itemized estimated costs of all aspects of work.

After preliminary approval, work can start. During work, SHPO review staff will usually be involved in making final decisions that impact the historic character of a building. When work is completed, an applicant has to submit a fully itemized account of all project expenses, with receipts proving money was spent as claimed. Homeowners that use the credit can learn the hard way that they needed to save every receipt. Without proof that they bought that $2.39 tube of caulk, it cannot be claimed as an eligible expense. DED’s rules will not allow any wiggle room — not even on a $50,000 project.

There is a lot of concern about the impact of tax credit programs on Missouri’s revenue. One can argue whether the historic rehab tax credit should exist, but one cannot claim that the program’s rules allow for unverified claims. The state gets exactly what it pays for, and gets to decide up front whether to pay at all. All other tax credit programs — especially programs that allow single applicants to claim $20 million in one application — should play by the same rules.