Apr 2, 2021

Blue Sky took 4 49M in excess tax credits, auditors say

Blue Sky Studios, the Disney-owned animation studio due to shut this month, received around $49.4 million more in Connecticut tax credits than it should have, according to state auditors.

In a report released on Wednesday, the auditors wrote that the Greenwich, Connecticut-based company took around $94.4M in state film production tax credits in 2017–2019 (state fiscal years). They argued it should instead have received state digital animation tax credits, which are capped at $15M per year for all companies combined. Under this program, Blue Sky would have been given no more than $45M across those three years.

Blue Sky did in fact receive the digital animation tax credit in the 2016 fiscal year, taking the full $15M. It was then switched to the film production credit, which allows companies that incur more than $1M in production expenses to claim back 30% of those expenses. In the fiscal year ending in June 2019, DECD distributed $157M to all companies under this program.

The report does not identify Blue Sky by name, but it states that the company in question received the animation credit in 2016. Blue Sky is the only company to have received the credit in that year.

“Since the General Assembly established a separate program for digital animation companies,” the report notes, “it does not appear that it intended for digital animation companies to be eligible for film production tax credits.”

The Department of Economic and Community Development (DECD), the agency behind the credits, disagrees with the auditors, according to a response included in their report. “A digital animation production company is eligible for film production tax credit under … Connecticut general statutes,” reads the response. “The company produces motion pictures, which is a statutorily qualified medium.”

The Associated Press contacted Blue Sky, Disney officials, and Democratic governor Ned Lamont's office for comment, but did not receive replies. The DECD would not comment beyond their response in the report.

Blue Sky produced the Ice Age and Rio franchises, as well as films like Ferdinand and The Peanuts Movie. It was acquired by Disney as part of the 21st Century Fox purchase in 2019. In February, Disney announced that it will shut the studio in April, citing “the current economic realities.”