State probing tax breaks to 'phantom' firms

Monday, November 10, 2003

ST LOUIS -- The state is investigating whether it wrongly has been awarding special tax credits to "phantom" businesses that have no employees, listed addresses, working phone numbers or Web sites.

The Rebuilding Communities program is supposed to draw high-tech companies to poor areas by helping them buy specialized equipment, including computers and medical laboratory devices.

The state absorbs 40 percent of the equipment's cost by giving the companies tax credits, which are as good as cash because they typically can be sold for 90 cents on the dollar.

The Rebuilding Communities program is used mainly in St. Louis, where a dozen companies this year each got the maximum $75,000 in tax credits, meaning they reported spending at least $187,500 on equipment.

But the St. Louis Post-Dispatch reported Sunday that none of the 12 has a city business license, and five of the companies were started by one man who has shut them down after getting $900,000 in tax credits.

"We are aware that under this program, there have been some improprieties that we're checking into," said Mike Downing, who oversees business incentives for the state Department of Economic Development.

Attorney General Jay Nixon also is investigating.

The Post-Dispatch said it asked to see applications for all who got the specialized equipment tax credit the past three years. Of specific interest: names of the businesses, contact people, phone numbers, work-force sizes, location, type of business and amount of equipment purchased.

The newspaper said economic development officials refused to release most of the information, citing a law allowing tax credit records to be closed except for "amount and recipient." Accordingly, they released only the dollar amounts and the 47 recipients' names, with a general notation on whether they were from the St. Louis area.

The Post-Dispatch identified the questionable recipients by piecing together corporate filings with the secretary of state, business license records, Internet directories and interviews.

The law does not require that new or relocating businesses create a minimum number of jobs.

Still, the program includes some successes, such as PNMG, which specializes in Web site development. The company moved to St. Louis from Webster Groves and grew from three employees to eight with the help of about $14,000 in equipment credits.

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