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Maryland Auditors Find Companies Get Tax Credits Without Documentation

1 min readBy: I. Harry David

Erratum: This post has been amended from its original version, which incorrectly stated that the incentives program in question was related to film taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. credits. The auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. was actually for the “One Maryland Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. ,” a general incentive program for job creation. The Tax Foundation regrets this error, and the post below reflects these changes.

On February 7, Maryland’s Office of Legislative Audits released a report on the state’s “One Maryland Tax Credit” program, finding several instances of faulty documentation by firms applying for incentives aimed at job creation.

The Department of Business and Economic Development (DBED), which gives these credits to companies for qualified expenditures on startup and project costs, approved at least 8 applications out of the 10 firms audited without documentation. The total amount of tax credits for these 8 projects was $34 million, out of the $65.8 million for all 17 projects approved between FY2008 and 2010. Although companies are required to also provide information about the number of people employed on their projects, 4 of the 10 audited failed to give even that information.

Auditors have since called for stricter monitoring, although they speculate that DBED failed the inspection due to “sloppiness, not malfeasance.”

In their response to the audit, the Department of Business and Economic Development in Maryland has stated that they will “immediately amend the preliminary and final tax credit applications to include an accounting of start-up and project costs.”