State and local governments will be required to make new disclosures about tax incentives they agree to, according to a GASB standard issued Friday.
It’s common for state and local governments to give businesses tax incentives and tax breaks, many times in order to secure a promise for a business to locate in their state or area, which can spark economic growth and job creation.
GASB Statement No. 77 requires new government disclosures about such agreements with entities and individuals to help financial statement users understand the extent and nature of these agreements.
“This new guidance will result in people who use governmental financial statements having access to essential information about the tax abatements governments enter into,” GASB Chairman David Vaudt said in a news release. “Not only will this mean that they’ll have access to information that will allow them to better access a government’s financial health, but it will also make the impact of these agreements much more apparent.”
The new disclosures about a government’s own tax abatement agreements include:
- The purpose of the tax abatement program.
- The tax being abated.
- The 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 standard also requires disclosures about tax abatements that are entered into by other governments that reduce the reporting government’s tax revenues. These include:
- The name of the government entering into the abatement agreement.
- The tax being abated.
- The dollar amount of the reporting government’s tax being abated.
The standard takes effect for financial statements for periods beginning after Dec. 15, 2015. GASB encourages earlier application.
—Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.
