GASB issues final standard on tax abatement disclosure.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle

In August 2015, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 77, Tax Abatement Disclosures. The related exposure draft (ED), which was released in October 2014 (See Government Finance Review, December 2014), drew considerable attention and comment from the Government Finance Officers Association (GFOA), similar groups, and other GASB stakeholders.

GFOA responded to the ED by: 1) encouraging the GASB to provide for a more "balanced" picture of tax abatements by incorporating information on the benefits of tax abatement programs; 2) simplifying required disclosures; and 3) providing practical help for governments that are legally prohibited from providing certain specific information on tax abatements. The final guidance offered in GASB Statement No. 77 has been modified from the ED to address the latter two concerns. Specifically, GASB Statement No. 77 expressly exempts governments from disclosing certain information if they are legally prohibited from doing so. It also does not require governments to disclose the number of tax abatement agreements entered into during the period and in effect at the end of the period. Likewise, the final standard substantially reduces required disclosure for tax abatements of other governments.

GASB Statement No. 77 takes effect starting with the fiscal year that ends December 31, 2016, but earlier application is encouraged.

Definition of a tax abatement. For purposes of GASB Statement No. 77, a tax abatement possesses three essential characteristics:

* It is the product of an agreement. A tax abatement results from an identifiable agreement (not necessarily in writing or legally enforceable) in force prior to the abated taxes whereby the government promises to reduce a specific individual's or entity's tax liability in return for the latter's promise to take certain actions.

* The agreement is intended to promote a public purpose. The purpose of a tax abatement is to promote economic development or to otherwise befit the government or its citizens.

* The agreement abates taxes, rather than some other type of revenue. The agreement abates a tax rather than a fee or charge.

Scope of Guidance. The scope of GASB Statement No. 77 encompasses not just a government's own tax abatement agreements, but also tax abatement agreements of other governments that reduce the government's revenues, with information on each being disclosed separately.

Form and Content of Disclosure. For a...