State and local government financial statements would be required to reflect agreements that state and local governments make to attract businesses to their areas, under new accounting rules GASB proposed.
In an effort to stimulate economic development, governments often agree to abate or reduce the taxes of businesses and other taxpayers. These agreements may have substantial effects on the financial health of these governments and their ability to raise revenue.
But those effects often are difficult to discern from the governments’ financial statements, and GASB’s proposed disclosure requirements are designed to provide financial statement users with important information about these tax abatement or reduction agreements.
The proposed disclosures would require state and local government disclosures about tax abatements to 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 government’s number of tax abatement agreements.
- The dollar amount of the taxes abated.
- Other commitments made by a government in the agreements, such as commitments to build infrastructure assets.
“Tax abatements can significantly reduce the amount of revenue a government receives,” GASB Chairman David Vaudt said in a news release. “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.”
Comments on the proposal, Tax Abatement Disclosures, are due Jan. 30 and can be emailed to firstname.lastname@example.org. Comments should be addressed to the Director of Research and Technical Activities, Project No. 19-20E. The proposal is available at tinyurl.com/olgfulr.