Auditors Claim Disney Took Millions In Excess Tax Credits Right Before Terminating Blue Sky Studios

The auditors’ conclusions rest on the argument that Blue Sky was applying for — and getting — the wrong credit. Since 2017, it had been receiving the Film and Digital Media Production Tax Credit, which covers up to 30% of qualified production expenses or costs incurred in Connecticut, with no upper limit. The credit isn’t tied to specific projects, or metrics like number of jobs created and retained. (Blue Sky was owned by Fox until 2019.)

But the state has another incentive, the Digital Animation Production Tax Credit, which is capped at $15M annually. The auditors believe Blue Sky should have been applying for this instead — as indeed it had until 2016. So everything it got over $15M a year was in excess.

“Since the General Assembly established a separate program for digital animation companies,” notes an auditors’ report from last year, “it does not appear that it intended for digital animation companies to be eligible for film production tax credits.” Blue Sky remains the only company ever to receive money under the state’s Digital Animation Production Tax Credit.

State law prohibits companies receiving credits from relocating out of the state within ten years, under penalty of repayment and a fine. But Blue Sky didn’t relocate: it simply shut in April 2021.

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.

Disney did not respond to The Connecticut Mirror’s email requests for comment.