New Rules Require Disclosure of Tax Abatements

New Rules Require Disclosure of Tax Abatements

By Bill R. Shelton, CEcD

Tax abatements play a role in many communities’ retail development processes, which means it is important to be aware of changes in tax abatement policies. After December 15, 2015, local and state governments are required to disclose details about tax abatement agreements on financial statements.

The disclosure requirements in the Government Standards Accounting Board’s (GSAB) approved new guidelines (Statement No.77 8/14/15) are designed to provide financial statement readers with essential information about these agreements and the impact they have on government financing.

According to the GSAB, tax abatements impact the financial health of local governments and their abilities to raise revenues. “Until now, it has been difficult to determine the extent and nature of these (abatements) effects from financial statements… (Now) they will 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,” said GSAB Chair David A. Vaudt.

Statement No. 77 requires governments to disclose information about their own tax abatements separately from information about tax abatements entered into by or with other governments.

The new disclosures about a government’s own tax abatements include:

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

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

  • The name of the government entering into the agreement
  • The tax being abated
  • The amount of the reporting government’s taxes abated

The requirements of Statement No. 77 are effective for financial statements after December 15, 2015 with earlier applications encouraged.

Additional information is available on the GASB website. Statement No. 77, Tax Abatement Disclosures.