Tax abatements are widely used by state and local governments. A tax abatement results from an agreement between one or more governmental entities and a taxpayer in which (a) one or more governmental entities promise to forgo revenues from taxes for which the taxpayer otherwise would have been obligated and (b) the taxpayer promises to take a 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. Although many governments offer tax abatements, little information is publicly available regarding the provisions of tax abatement agreements or the magnitude of the effect those agreements will have on a government’s ability to raise resources in the future. The Governmental Accounting Standards Board recently issued an Exposure Draft, Tax Abatement Disclosures, which, if finalized, would require governments that are subject to tax abatement agreements to disclose the following:

• General 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 number of tax abatement agreements entered into during the reporting period and the total number in effect as of the end of the period
• The 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

The Exposure Draft would require disclosures of tax abatement information to distinguish between a reporting government’s own tax abatement agreements and those entered into by other governments that reduce the reporting government’s tax revenues. For its own tax abatements, the reporting government would be able to disclose tax abatement information for individual tax abatement agreements or aggregate the information by major tax abatement program. Tax abatement agreements of other governments that affect the reporting government could be combined.