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GASB Sets New Disclosure Rules for Tax Abatements

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Aug 17th 2015
Staff Writer and Editor AccountingWEB
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For the first time, state and local governments will be required to disclose information about tax-abatement agreements they have entered into, according to a new standard issued by the Governmental Accounting Standards Board (GASB) on Aug. 14.

The new guidance, GASB Statement No. 77, Tax Abatement Disclosures, is intended to provide financial statement users with key information about these tax-incentive agreements and the impact they have on a government's finances.

“Not only will this mean that they'll have access to information that will allow them to better assess a government's financial health, but it will also make the impact of these agreements much more apparent,” GASB Chairman David Vaudt said in a written statement.

State and local governments often provide tax incentives to induce businesses to locate to or stay within a government's borders, or to increase or maintain a certain number of jobs. Government entities reduce the taxes the business or individual otherwise would owe. In return, the business or individual promises to take a specific action that contributes to economic development or benefits the community and its citizens.

However, according to the GASB, because essential information on these agreements is not consistently or comprehensively available, it has been difficult to discern the extent and nature of the tax-abatement program's effects from the government's financial statements.

Statement 77 now requires governments to disclose information about their own tax abatements separately from information about tax abatements that are entered into by other governments and reduce the reporting government's tax revenues.

The new disclosures about a government's own tax-abatement agreements include:

  • The purpose of the tax-abatement program.
  • The tax being abated.
  • Dollar amount of taxes abated.
  • Provisions for recapturing abated taxes.
  • The types of commitments made by tax-abatement recipients.
  • Other commitments made by a government in tax-abatement agreements, such as to build infrastructure assets.

The new disclosures about tax abatements that are entered into by other governments and reduce the reporting government's tax revenues include:

  • The name of the government entering into the abatement agreement.
  • The tax being abated.
  • Dollar amount of the reporting government's taxes abated.

Greg LeRoy, executive director of Good Jobs First, a national policy resource center that promotes corporate and government accountability in economic development, called the new GASB standard “a victory for the thousands of taxpayers, grassroots groups, and public officials who have for so long demanded these tax breaks be more transparent and accountable.”

“States and cities spend an estimated $70 billion a year for economic development, most of it through tax expenditures. But we could only estimate because GASB has never before called for standardized reporting,” LeRoy said in a written statement. “That's the historic value of this new standard: Taxpayers and policymakers will finally see the true price tag for economic development.”

The standard takes effect for financial statements for periods beginning after Dec. 15, 2015. Early application is encouraged.

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