Understanding GASB Statement No. 77


Governments now have a standard for reporting tax abatements offered for economic development. ,Governments now have a standard for reporting tax abatements offered for economic development.

A new regulation from the Governmental Accounting Standards Board (GASB) will require state and local governments to disclose any tax abatements they offered, as well as what impact these abatements had on the government's finances.

For the purposes of the new GASB requirement, called statement No. 77, tax abatements are defined as an agreement in which a government or governments forgo tax revenues to which they would otherwise be entitled. In return, the individual or entity receiving the tax incentive or reduction agrees to participate in an economic development initiative – such as job creation, renovation or development in a blighted or underdeveloped area – or other efforts that benefit the government or its citizens.

"GASB has been working to develop a standard for reporting tax abatements since 2008."

Since 2008, the GASB has been working to develop a standard for reporting these abatements after it concluded financial statement users, including citizens, taxpayers, legislative and oversight bodies and municipal bond analysts, did not always have sufficient information to assess how tax abatements factored into a government's financial position and operations.

What GASB Statement No. 77 requires
The new GASB regulation will be effective for periods beginning after Dec. 15, 2015, and requires governments to provide a document disclosing tax abatement information in regard to both the government's own agreements and agreements that are entered into by other governments that affect the reporting government's tax revenues.

According to GASB guidelines, this document should include:

  • Descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes and the types of commitments made by tax abatement recipients
  • The gross dollar amount of taxes abated during the period
  • Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement

In the event of tax abatement agreements that involve multiple governments, governments are also required to disclose information about abatements that originated with another government if the agreement reduced the reporting government's tax revenue. The disclosures needed in this instance may include:

  • The names of the governments that entered into the agreements
  • The specific taxes being abated
  • The gross dollar amount of taxes abated during the period

What Statement No. 77 will do
According to GASB Chair David A. Vaudt the new standard will serve to provide essential information to people who enter into tax abatements with governments, as well as financial statement users.

"Not only will this mean that they'll 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," Vaudt said in a statement.

The full text of Statement No. 77 is available on the GASB's website. For more information about complying with GASB Statement No. 77 or other public sector tax reporting standards, contact the public sector industry professionals at LaPorte. 

?>