GASB Statement No. 77 | Tax Abatement | Ohio CPA Firm

full disclosure | tax abatement agreement information | Ohio CPA Firm — Governmental financial statement users regularly rely on the information provided within a government’s tax abatement agreements to assess any limitations on a government’s ability to raise resources and/or revenue. Moving forward, government entities must disclose key information about its tax abatement agreements as well as any agreements that were entered into by other government entities that, as a result, reduces the reporting government’s tax revenue. Read on to learn more.

If you haven’t already, now is the time to dust off your tax abatement agreements and take steps to comply with the Governmental Accounting Standards Board’s current tax abatement disclosures reporting standard.

In a move to provide more consistent and comprehensive information to those seeking an assessment of a government’s overall financial heath, GASB Statement No. 77 was passed to require entities to disclose key information pertaining to their tax abatement agreements. The GASB says the disclosure update was necessary to provide investors and other users of governmental financial statements with better information from which to assess a government’s financial health.

Tax Abatement Defined

A tax abatement, according to GASB Statement No. 77, refers to a reduction in any type of tax revenues directly resulting from an agreement between one or more government entities and an individual or entity. As part of the agreement, a commitment is made by one or more government entities to forgo tax revenues to which they were otherwise entitled. In return, the individual or entity commits to taking a specific action for the purposes of contributing to the economic development of a particular region or otherwise benefiting the government entity as a whole or its citizens.

Common Abatement Programs & Exceptions

While most of your abatement programs will be impacted by GASB 77, there are always exceptions to implementation. In any case, this is a good time to review and evaluate any and all programs currently in place, including Community Reinvestment Areas (CRAs), Enterprise Zone Agreements, Tax Increment Financing Agreements (TIFs) and Income Tax programs.

Even though entities are advised to evaluate any existing TIFs, due to the very nature of the agreement, most will not be impacted by GASB 77. This is because the compensation payments the property owner makes are for the same amount as the property tax, even though funds are redirected and restricted with regard to how they can be used. In addition to this exception, if an abatement agreement requires an individual or entity to first perform a commitment before a government commits to abating a tax, GASB 77 will not apply.

What Information Should Be Disclosed?

Governmental financial statement users regularly rely on the information provided within a government’s tax abatement agreements to assess any limitations on a government’s ability to raise resources and/or revenue. Moving forward, government entities must disclose key information about its tax abatement agreements as well as any agreements that were entered into by other government entities that, as a result, reduces the reporting government’s tax revenue.

Abatements entered into by the reporting government, may be reported individually (requires the government to establish a threshold) or in aggregate and should be organized by each major tax abatement program, such as an economic development program. Abatements impacting the reporting government, however entered into by other governments, should be organized by the government that entered into the tax abatement agreement (individually or in aggregate) and the specific tax being abated.

The information the entity is required to disclose greatly depends on whether the entity entered into the tax abatement agreement or was impacted by another entity’s agreement.

If your government entity entered into a tax abatement agreement, you must disclose the following key information:	If your government entity was impacted by another government’s tax abatement agreement, you must disclose the following key information:
The purpose of the tax abatement agreement. Gross amount of taxes abated for the year. If applicable, amounts received or receivable from other governments in association with the forgone tax revenues. If reported individually, a description of the quantitative threshold used. Other commitments made by the government. If information in legally prohibited from being disclosed, the general nature of the abatement information omitted and specific source of the legal prohibition should be reported.	A brief description of the tax abatement agreement, including the names of the governments that entered into the abatement. Gross amount of taxes abated for the year. If applicable, amounts received or receivable from other governments in association with the forgone tax revenues. Other commitments made by other governments. If reported individually, a description of the quantitative threshold used. If information is legally prohibited from being disclosed, the general nature of the abatement information omitted and specific source of the legal prohibition should be reported.

If your government entity
entered into
a tax abatement agreement,
you must disclose the
following key information:

If your government entity
was impacted by
another government’s tax abatement agreement,
you must disclose the
following key information:

The purpose of the tax abatement agreement.
Gross amount of taxes abated for the year.
If applicable, amounts received or receivable from other governments in association with the forgone tax revenues.
If reported individually, a description of the quantitative threshold used.
Other commitments made by the government.
If information in legally prohibited from being disclosed, the general nature of the abatement information omitted and specific source of the legal prohibition should be reported.

A brief description of the tax abatement agreement, including the names of the governments that entered into the abatement.
Gross amount of taxes abated for the year.
If applicable, amounts received or receivable from other governments in association with the forgone tax revenues.
Other commitments made by other governments.
If reported individually, a description of the quantitative threshold used.
If information is legally prohibited from being disclosed, the general nature of the abatement information omitted and specific source of the legal prohibition should be reported.

Which Entities Must Comply

Governments that prepare their financial statements in accordance with generally accepted accounting principles (GAAP) will need to include GASB 77 disclosures in their financial statements.

Governments that are statutorily required to prepare their financial statements in accordance with GAAP, but prepare their financial statements using another comprehensive basis of accounting (i.e. OCBOA/GAAP look-alike) or use the regulatory basis financial statements (i.e. AOS basis), are also required to include the GASB 77 disclosures in their financial statements.

If you find yourself in need of assistance, don’t hesitate to ask for help. The government services team at Rea & Associates is equipped to help government entities of all sizes identify solutions that can help streamline your tax abatement disclosure process. From coordinating with other entities to help you pull together all necessary tax abatement information to helping identify processes to help ease the burden on your staff, email Rea & Associates to learn more.

By Chad Welty, CPA (Medina office)

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