GASB Statement No. 77 Requires Tax Abatement Disclosures To help financial statement users more fully recognize the impact of tax abatements, the Governmental Accounting Standards Board (GASB) issued Statement No. 77 – Tax Abatement Disclosures – in August 2015. State and local governments frequently enter into tax abatement agreements with individuals, businesses or other entities in which the government reduces – or abates – taxes owed in exchange for benefits the taxpayer can provide. Tax abatement agreements are frequently negotiated as economic development efforts in which a company receives various forms of tax abatement in exchange for building or expanding facilities, creating new jobs or delivering other economic benefits. While widely used by state and local governments throughout the United States, tax abatements restrict current and future government efforts to generate revenue. That affects governments’ economic health and abilities to meet other funding obligations or requests. Tax abatement agreements can also be complex and affect more than one government, making it difficult for financial statement users to fully appreciate the nature and ramifications of such agreements. Statement No. 77 addresses those concerns and applies to financial reports of all state and local government entities. Effective Date Statement No. 77 requirements take effect for financial statement periods beginning after December 15, 2015. The GASB encourages earlier application. Anticipated Improvements The GASB anticipates Statement No. 77 requirements will result in more consistent and comprehensive disclosure of tax abatement details, thereby enhancing the transparency of such transactions. That will make it easier for financial statement users to understand the impact abatements have on a government’s financial position and economic condition, and how those abatements affect a government’s future ability to generate revenue and meet financial obligations. Disclosure Requirements Statement No. 77 directs governments to include the following three items in tax abatement disclosures: Brief descriptive information that includes the purpose of a tax abatement, the tax being abated, the authority under which it is provided, the mechanism used for abating the tax, provisions for recapturing abated taxes, eligibility criteria and commitments made by a tax abatement recipient The gross dollar amount of taxes abated during the reporting period Other commitments made by a government as part of a tax abatement agreement – such commitments often include infrastructure improvements, such as road construction or extensions of water and sewer lines
GASB Statement No. 77 – Page 1
Disclosure Requirements for Tax Abatements Involving Multiple Governments A tax abatement agreement may encompass combinations of governments, such as two municipal governments, a municipal government and a county government, or a municipal, county and state government. Statement No. 77 requires that disclosures for tax abatements involving multiple governments include: The names of governments involved in the agreement The specific taxes abated The gross tax dollar amount abated during the reporting period Summary Statement No. 77 addresses the widespread use of tax abatement programs and the need to disclose details associated with those abatements. That enhances transparency and more fully illustrates the financial impact such abatements have on governments. Affected entities need to familiarize themselves with these requirements and be prepared for compliance.
GASB Statement No. 77 – Page 2