GASB Statement No. 77, Tax Abatement Disclosures
In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. The pronouncement is effective for periods beginning after December 15, 2015. This statement requires disclosure of tax abatement information concerning:
- a reporting government’s own tax abatement agreements.
- agreements that are entered into by other governments that reduce the reporting government’s tax revenues.
What is tax abatement?
Tax abatement is a reduction in tax revenue that has the following characteristics:
- An agreement between one or more governments and an individual or entity.
- One or more governments promise to forgo tax revenues to which they are otherwise entitled.
- The individual or entity promises to take specific action that contributes to economic development or otherwise benefits the governments or the citizens of those governments.
GASB Statement 77 provides that a “transaction’s substance, not its form or title, is a key factor in determining whether the transaction meets the definition of a tax abatement.” Tax exemptions and deductions are not regarded as tax abatements under GASB Statement 77 because they are broadly available to anyone who meets certain conditions, whereas tax abatements are only allowable to entities that perform a required activity.
Disclosures required
The disclosures are extensive and should be organized by each major type of tax abatement program. The disclosures required include:
- A description of the program.
- The amount of the tax that is reduced.
- The mechanism by which the taxes are reduced.
- Provisions for recapture (if any).
- The types of commitments made by the recipients of the tax abatement.