New accounting standards going into effect this fiscal year will require a greater level of transparency regarding deals made between governments and businesses.
The Governmental Accounting Standards Board, known better as GASB, now requires governments to disclose how tax abatements impact revenue each year. The rule – which will be reflected in government financial statements – took effect July 1, 2016.
“Although many governments offer tax abatements and provide information to the public about them, they do not always provide the information necessary to assess how tax abatements affect their financial position and the results of operations, including their ability to raise resources in the future,” according to GASB.
The new rule requires states and municipalities to disclose such information as what tax is being abated, the authority under which it’s provided, gross dollar amount and other commitments made as part of the abatement agreement.
GASB defines a tax abatement as an agreement between one or more governments and an individual or entity, in which the government promises to forgo tax revenue in exchange for “specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments.”
This fiscal year, Rhode Island awarded several tax breaks and other incentives for companies looking to build and grow jobs in the state. At the end of this fiscal year, those abatements will have to show up on the state’s fiscal statements. Other deals made in previous years that are still in effect must also be reported.
“Prior to this statement, there really hasn’t been any requirement of disclosure on financial statements for abatements,” said Ronald W. Nossek, a certified public accountant and partner at blumshapiro in Providence.
Please submit your inquiry or questions using the form below and we’ll get back to you shortly.