Missouri State Auditor's Office

State estimated to lose $12 million on Small Business Investment tax credit program; auditors recommend state let credit expire with no new credits issued

This audit reviewed the cost-benefit to the state of the Small Business Investment (SBI) tax credit program and found the credit would not create enough economic activity to offset the tax credits used. The program, started in 1993, can issue up to $13 million in tax credits to entities investing in Missouri small businesses. Legislators meant for the credit to create jobs by inducing private investments into new or growing small businesses. As of December 2004, state officials had issued $12.9 million in tax credits for this program, and $11.5 million had been redeemed, with about 76 companies receiving about $28.8 million in investments through 1999. State law requires state auditors to perform a cost-benefit analysis of all state tax credit programs, and this report is a part of such ongoing work.

SBI will not increase jobs or state revenue to offset credits

Auditors found the state will lose an estimated $11.8 million on this tax credit, with positive economic effect in only 3 of the 17 years of the program. (See page 10)

Tax credit will create an average of 52 jobs over 17 years

Auditors used economic software to analyze the total economic impact of this tax credit program. The software found the program created a projected total average of 52 jobs for the 17-year program. (See page 10)

Audit recommends no new funds for the tax credit

program

Auditors recommended the General Assembly allow the tax credit program to expire without authorizing additional tax credits, due to the projected state revenue loss. (See page 12)

Application data for businesses not verified

State officials had no procedures to verify the accuracy of application data for businesses seeking to participate in the program. State officials relied on information supplied by applying business owners and did not verify it. This situation could allow unqualified businesses to misreport information and be approved. (See page 13)

State cannot ensure investments remained in businesses for 5 years

State officials had not monitored investments received by participating businesses to ensure they remained in the business for 5 years, as is required by the state law creating the tax credit. (See page 13)