GASB Proposes Disclosure of Tax Abatement Details

The Governmental Accounting Standards Board has released a proposed standard that would require state and local governments to disclose information about property and other tax abatement agreements for the first time.

Governments generally agree to abate or reduce the taxes of businesses and other taxpayers to promote goals such as economic development, job growth, redevelopment of blighted or underdeveloped areas, and other actions that may benefit the government or its citizens. Many state and local governments currently have tax abatement programs in place and the effects of tax abatements on their financial health and ability to raise revenue can be substantial. However, it is difficult to discern the magnitude and nature of those effects from financial statements at present, GASB noted.

The disclosures required in the exposure draft of the proposed statement, Tax Abatement Disclosures, would provide financial statement users with essential information about these programs.

Specifically, the proposed tax abatement disclosure requirements would include general descriptive information, such as the tax being abated, criteria that must be met for the taxpayer to be eligible for the abatement, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients. The proposed standard would also require disclosure of the number of tax abatement agreements, the dollar amount of taxes abated, and other commitments made by a government, such as to build infrastructure assets.

“Tax abatements can significantly reduce the amount of revenue a government receives,” said GASB chair David A. Vaudt in a statement. “But in many cases, little is known publicly about their total size or their terms and conditions. What the board has proposed would make the financial impact of these transactions much more transparent.”

The proposed guidance addresses tax abatements resulting from agreements entered into by the reporting government, along with those initiated by other governments that reduce the reporting government’s tax revenues.

The exposure draft is available on the GASB website, along with a GASB in Focus summary document, a Tax Abatement Disclosures page, and a video. Stakeholders are encouraged to review the proposals and provide comments by Jan. 30, 2015.

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