Credits & Incentives Update – The Transparency Trend: Should State and Local Governments be Required to Disclose Forgone Tax Revenue Due to Incentive Agreements?

Source: Emily A. Fiore, Journal of State Taxation, Vol. 33 no. 2, Spring 2015
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State and local tax incentives can be the determining factor in whether a company initiates a capital investment project in a particular location. many companies will not go forward with these projects without some sort of partnership with the government to ensure financial feasibility. Several states, such as California, have introduced state-level requirements requiring public disclosure of the companies that have applied for or won state incentive awards. However, governments do forgo tax revenue due to these agreements, and some groups believe that additional transparencies are needed to ensure taxpayers understand the government’s use of its financial resources, compliance by companies with these agreements, and the financial and economic conditions of the government are well understood.

There has been a recent push by governing agencies, such as the Governmental Accounting Standards Board (“GASB”), to disclose the amount of tax revenue the state forwent due to the incentive process. Additionally, state governments, such as the State of Texas, and independent public interest groups, such as the U>S> Public Interest Research Groups (“U.S. PIRG”) and The PEW Charitable Trusts, have encourages some level of disclosure of these incentive agreements by the government. This article explores a selection of these proposals/projects and discusses some potential impacts from this type of regulation. ….