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What Exactly is a Fee?

IVGID 101 Posted on by

Pretty simple question, right? Not so fast.

Although you may think you know the answer1, the truth of the matter is that courts have oftentimes been asked to define a fee’s characteristics, and how they differ from other types of monetary exactions (like taxes or assessments). And the distinctions are not always observed with nicety2. After all, just because staff and past Incline Village General Improvement District (“IVGID”) Boards have labeled Recreation (“RFF”) and Beach (“BFF”) Facility Fees “fees,” doesn’t necessarily make them so. That’s because

“The nature of (a)…charge that (the) law imposes is not determined by the label given…but (rather)…its operating incidence.”3

And for this reason

“Courts will determine and classify (monetary exactions) on the basis of realities”4 rather than label(s)…looking to their ‘operative effect.’”5 Especially when as here a number of the “fees” the District charges (like the RFF/BFF, solid waste franchise fees, defensible space fees, allocated central services charges, etc.) were undoubtedly drafted with a particular statute’s6 language “firmly in mind.”7

Stated differently, courts will not allow local governments to do what our District regularly does. That is, rely upon an ends justifying means philosophy that calls monetary exactions something they are not! And here’s an example. Since NRS 318.197(1) allows general improvement district (“GID”) boards to fix and from time-to-time increase “standby service charges, for services or…the availability of service(s),” is it any surprise the District labels its RFF/BFF “standby service charges7 fees “for…the availability of the use” of IVGID’s recreation facilities? I.e., its beaches and public recreation facilities such as the “Championship golf course; Mountain golf course; tennis facilities; the Chateau and Aspen Grove; Diamond Peak Ski Resort, and Recreation Center?”8

Here’s another example of the same principle; the District’s (2025-26) budget. Close to $70 million of yearly revenues9! Yet how much was budgeted as a result of the ad valorem taxes the District is permitted10 to collect? $2,249,48611. And how much as a result of the District’s portion of consolidated taxes (“C-taxes”) which are awarded to local governments by the State? $1,883,00011. Thus combined, less than six percent (6%) of the District’s total budgeted revenues are generated as a result of taxes. So where does the remainder come from? Because the answer is “receipts from customers and others” as well as other “fees”12 which are labeled “operational revenues,”13 we believe it important to understand exactly what do and do not constitute “fees” and “operational revenues.”

To answer the question, let’s begin with an examination of the seminal Emerson College5, supra, at 391 Mass. 424-425 case which instructs that:

“Fees imposed by a governmental entity tend to fall into one of two principal categories: user fees, based on the rights of the entity as proprietor of the instrumentalities used…or regulatory fees (including licensing and inspection fees), founded on the (municipal) police power14 to regulate particular businesses or activities.”15

Given IVGID is a limited purpose special district16 which has expressly not17 not been granted general municipal type police powers12, there’s no purpose discussing regulatory fees insofar as IVGID is concerned18. Therefore in determining whether the monetary exactions the District charges are actually “fees,” we’re left with user fees for instrumentalities furnished19. Or as the Governmental Accounting Standards Board (“GASB“) instructs20, the product of “exchange”21 or “exchange-like”22 transactions.

The Distinction Between Exchange And Exchange–Like Versus Nonexchange Transactions: In an exchange transaction “each party receives and gives up essentially equal values.”21 In an exchange-like transaction “the values exchanged, though related, may not be quite equal or in which the direct benefits may not be exclusively for the parties to the transaction.”22 Because there are instances where parties to services may be willing to receive or pay amounts that are similar, but not precisely equal nor exclusively for the parties involved23, “the difference between exchange and exchange-like transactions is merely one of degree.” And the latter are treated as exchange transactions for GAAP accounting recognition purposes22 because at the end of the day, each party still gives up or receives something of value.

Notwithstanding, GASB Statement No. 33 instructs that nonexchange transactions can be identified as falling into one of four classes “based on shared characteristics that affect the timing of recognition:

1. Voluntary nonexchange transactions, which result from legislative or contractual agreements, other than exchanges, entered into willingly by the parties to the agreement (for example, certain grants and private donations);

2. Derived tax revenues, which result from assessments imposed on exchange transactions (for example, income taxes, sales taxes, and other assessments on earnings or consumption);

3. Imposed nonexchange revenues, which result from assessments imposed on nongovernmental entities, including individuals, other than assessments on exchange transactions (for example, property taxes and fines); (and,)

4. Government-mandated nonexchange transactions, which occur when a government at one level provides resources to a government at another level and requires the recipient to use the resources for a specific purpose (for example federal programs that state or local governments are mandated to perform).”

As we examine the “operating incidences,”3 “realities,”4 “operative effect,”5 and common traits of all fees the District assesses, we should harken back to GASB Statement No. 33. In other words, are the District’s monetary exactions really “imposed nonexchange revenues, which result from assessments imposed on nongovernmental entities, including individuals, other than assessments on exchange transactions?” Because if they are, according to International Public Sector Accounting Standard (“IPSAS“) No. 23, Revenue From Non-Exchange Transactions and our What Are Our RFF/BFF According to Us discussion, they are taxes rather than fees.

The “Operating Incidences,” “Realities,” “Operative Effect,” And Common Traits of All Fees: According to Emerson College, fees are:

1. Charged “in exchange for a particular governmental service”24 which specially benefits the party paying the fee25 in a manner “not shared by other members of society;”26

2. Collected not to raise revenues27, but rather, “as a means of compensating…government for the cost of offering and regulating the special service, benefit, or privilege” furnished28;

3. “Reasonabl(y priced29)…in relation to the…cost (of the) goods or services for which they are imposed;”30 and,

4. Paid by choice31.

Because so many of the District’s monetary charges don’t include the element of choice32, is it any surprise naysayers have grasped a modified version of the Emerson College test? One adopted by the Hawaii Supreme Court in Medeiros which ignores the paid by choice identifying factor31, and

“Analyzes whether the charge: (1) applies to the direct beneficiary25 of a particular service24, (2) is allocated directly to defraying the costs of providing (that) service28, and (3) is reasonably proportionate to the benefit received.”33 Only “if those criteria fit the charge…is…it…a fee.”34 Otherwise, it is a tax35.

Although this deviation (adopted by the Massachusetts Supreme Judicial Court) subsequent to its opinion in Emerson College “weakened36…adherence to the…’voluntary receipt of the service’…identifying factor…holding that ‘the element of choice is not a compelling consideration which can be used to invalidate an otherwise legitimate charge,'”37 the authorities cited in support were limited to situations involving special benefit services affecting public health or sanitation. Such as:

Charges assessed to the owners of a residential property to maintain connections to municipal sewer38 and water39 systems. And those assessed to defray the costs40 of emergency medical services provided to unconscious individuals incapable of choosing whether or not to receive services41. And municipal planning charges assessed to manufacturers producing low-level radioactive waste42. Although these charges were discussed in support of the proposition “several other jurisdictions have either expressly or impliedly declined to place great reliance on the voluntariness of a service in assessing whether a charge is a fee or a tax,” none exist with respect to the District’s fees which are involuntarily assessed. Consequently this “weakening” of “adherence to the…’voluntary receipt of the service’…identifying factor” really has little bearing on the fees the District’s Board of Trustees (“BOT”) fixes.

Finally, since it is the Medeiros case which formally recognizes this deviation, it’s important to understand what that case was about. Quite notably it had nothing to do with charging a fee for a service or facility provided by government. Rather, it involved collection of a charge43 (i.e., an admitted revenue generating measure15) against a person convicted of a crime (unauthorized entry into motor vehicle). In the course of the Hawaii Supreme Court’s Medeiros opinion, it discusses differences between taxes and fees44. And it is here where the element of choice is discussed. Culminating in what is characterized as the sensible conclusion “a person or entity may benefit from a government service even though he or she has not voluntarily requested it.” A conclusion by-the-way, we agree with. However, only when it comes to very specific and limited circumstances involving public health and sanitation.

And now you know.

  1. Like pornography. You know it when you see it! This phrase was used by United States Supreme Court Justice Potter Stewart in his concurring opinion in the case of Jacobellis v. Ohio, 378 U.S. 184, 197, 84 S.Ct. 1676 (1964) to describe his threshold test for obscenity.
  2. Dickson, Sheriff v. Jeff. Co. Bd. of Education, 311 Ky. 781, 786, 225 S.W.2d 672 (1949).
  3. See Clean Water Coalition v. The M Resort, LLC, 127 Nev. 301, 255 P. 3d 247, 256 (2011) citing State of Hawaii v. Medeiros, 89 Haw. 361, 973 P.2d 736, 741 (1999).
  4. See Hukle v. City of Huntington, 134 W.Va. 249, 58 S.E.2d 780, 783 (1950).
  5. See Emerson College v. City of Boston, 39 Mass. 415, 462 N.E.2d 1098, 1105 (1984).
  6. Here NRS 318.197(1).
  7. See Rider v. County of San Diego, 1 Cal.4th 1, 15, 820 P.2d 10 (1991).
  8. See ¶4(b) of Resolution 1917 as well as ¶I of the “Report for Collection on the County Tax Roll of Recreation Standby and Service Charges (also known as…Recreation…and Beach Facility Fee(s).”
  9. See page 9 of Schedule B-2 ($10,162,970) combined with page 6 of Schedule A-2 ($59,323,850) of the 2025-26 budget.
  10. See NRS 318.225 which permits GIDs “to levy and collect general (ad valorem) taxes on and against all taxable property within the district.”
  11. See page 7 of Schedule B-9.
  12. See pages 12 of Schedule F-1 and 15 of Schedule F-2.
  13. See pages 13 of Schedule F-2 and 14 of Schedule F-1.
  14. “The definition is essentially the product of legislative determinations addressed to the purposes of government…neither abstractly nor historically capable of complete definition…Public safety, public health, morality, peace and quiet, law and order — these are some of the more conspicuous examples of the traditional application of the police power to municipal affairs. Yet they merely illustrate the scope of the power, and do not delimit it” [see Berman v. Parker, 348 U.S. 26, 32, 75 S.Ct. 98 (1954)].
  15. See Emerson College, supra, at 391 Mass. 424.
  16. See our What is a General Improvement District discussion.
  17. We say not because “in Nevada’s jurisprudence, the Nevada Supreme Court has adopted and applied Dillon’s Rule to county, city and other local governments” [see NRS 244.137(2) and 268.001(2)]. And “Dillon’s Rule provides that the governing body of a (local government)…possesses and may exercise only the following powers and no others: (a) those powers granted in express terms by the Nevada Constitution, statute or city charter [see NRS 244.137(3) and 268.001(3)]. And “if there is any fair or reasonable doubt concerning the existence of a power, that doubt is (to be) resolved against the governing body…and the power…denied” [see NRS 244.137(4) and 268.001(4)].
  18. See Dillon’s Rule which is recited at NRS 244.137(3)-(4) and 268.001(3)-(4) and expressly applicable to local governments other than cities and counties [see NRS 244.137(2)].
  19. Typically those associated with some type of transactional relationship where a “rate” or “charge” is a “fee or payment” (go to https://www.merriam-webster.com/dictionary/charge). Such as water, sewer and solid waste disposal fees. Or fees to access and use the District’s mostly public recreation facilities.
  20. Since “GASB establishes accounting and financial reporting standards for U.S. state and local governments that follow generally accepted accounting principles (GAAP),” and Nevada local governments’ financial statements[see NRS 354.486(3)], other schedules required for funds[see NRS 354.612(2)], and annual reports concerning capital improvements[see NRS 354.5947(2)] must all be prepared in accordance with GAAP, the simple fact of the matter is GASB governs the financial reporting of the District’s user fees.
  21. According to GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, a user fee represents an exchange transaction inasmuch as “each party receives and gives up essentially equal values.”
  22. According to footnote 1 of GASB Statement No. 33, “in contrast to a pure exchange transaction, an exchange-like transaction is one in which the values exchanged, though related, may not be quite equal or in which the direct benefits may not be exclusively for the parties to the transaction. Nevertheless, the exchange characteristics of the transaction are strong enough to justify treating the transaction as an exchange for accounting recognition.”
  23. Examples would include permits and professional or regulatory licensing fees, which are often accounted for under specific lease (see GASB Statement No. 87) or asset backed (see GASB Statement No. 94) arrangement standards.
  24. In governmental finance, this is known as the distinction between “exchange” and “non-exchange” transactions. In “an exchange transaction…each party receives and gives up essentially equal values….In a nonexchange transaction, a government gives (or receives) value without directly receiving (or giving) equal value in return.” Nonexchange transactions are represented by one of “four classes…based on shared characteristics…1. Derived tax revenues, which result from assessments imposed on exchange transactions (for example, income taxes, sales taxes, and other assessments on earnings or consumption). 2. Imposed nonexchange revenues, which result from assessments imposed on nongovernmental entities, including individuals, other than assessments on exchange transactions (for example, property taxes and fines). 3. Government-mandated nonexchange transactions, which occur when a government at one level provides resources to a government at another level and requires the recipient to use the resources for a specific purpose (for example, federal programs that state or local governments are mandated to perform). 4. Voluntary nonexchange transactions, which result from legislative or contractual agreements, other than exchanges, entered into willingly by the parties to the agreement (for example, certain grants and private donations)” [see GASB Statement No. 33].
  25. In other words, “the direct beneficiary of a particular service” (see Medeiros, supra, at 973 P.2d 742; Clean Water Coalition, supra, at 127 Nev. 315).
  26. See National Cable Television Ass’n v. United States, 415 U.S. 336, 341, 94 S.Ct. 1146 (1974). Because if the benefits furnished are as available to those who are not assessed, as to those who are, there is no “special” benefit.
  27. Given “a fee…is not a revenue measure [see Executive Aircraft Consulting, Inc. v. City of Newton, 252 Kan. 421, 427, 845 P.2d 57 (1993)], “any payment exacted by the State or its municipal subdivisions as a contribution toward the cost of maintaining governmental functions, where the special benefits derived from their performance (are) merged (with) the general benefit, is” not a fee. It is a tax (see Dickson, Sheriff, supra, at 311 Ky. 786). Otherwise “the addition of ‘public policy or interest served, and other pertinent facts,’ if read literally, carr(y) an agency far from its customary orbit and puts it in search of revenue.”17
  28. See Emerson College, supra, at 39 Mass. 424.
  29. “(T)he crucial factor in determining whether a municipal charge for services constitutes a valid…fee is whether the charge is intended to cover the (reasonable) cost of…providing a service” [see Rizzo v. City of Philadelphia, 668 A.2d 236, 238 (Pa. Commw. Ct. 1995)]. Where “the ‘fee’ unreasonably exceeds the value of the specific services for which it is charged it will be held (to be) invalid” [see Executive Aircraft Consulting, supra, at 252 Kan. 426 quoting National Cable Television Ass’n v. F.C.C., 554 F.2d 1094, 1106 (D.C. Cir. 1976)].
  30. See Resolution Trust Corp. v. Lanzaro, 140 N.J. 244, 658 A.2d 282, 288 (1995).
  31. Meaning the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge [see Vanceburg v. Federal Energy Regulatory Comm’n, 571 F.2d 630, 644 n.48 (D.C. Cir. 1977), cert. denied, 439 U.S. 818, 99 S.Ct. 79 (1978)].
  32. For instance, the District’s 10% solid waste franchise fee (see ¶12 of the Franchise Agreement to Provide Solid Waste and Recyclables Collection Services) is involuntarily and mandatorily passed through “allowable expense” to “all owners, occupants, or persons in possession, charge, or control of all places and premises in the District where garbage and other rubbish is created, accumulated, or produced” (see ¶3.1 of the District’s Solid Waste Ordinance No. 1). The District’s defensible space fee is included in all monthly water service billings (see the current schedule of charges) pursuant to the District’s Water Ordinance No. 4. Pursuant to ¶14.01, “no person shall construct, extend, or connect to any Public Water System without first obtaining a written permit from District and paying all fees and connection charges” associated therewith. Moreover, pursuant to ¶9.06, “all charges, fees and amounts due and payable shall be billed to the owner of the premises, whether or not the owner is also the occupant.” According to Policy No. 16.1.1, the District involuntarily “charge(s) the prescribed Recreation Fee and the Beach Fee to all qualifying real properties within the boundaries of the District.”
  33. See Medeiros, supra, at 973 P.2d 742.
  34. See Medeiros, supra, at 973 P.2d 742-45.
  35. See Clean Water Coalition, supra, at 127 Nev. 315; Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1457, 929 P.2d 253, 256 (1996); State v. Boyd, 27 Nev. 249, 256, 74 P. 654, 655 (1903); 71 Am. Jur. 2d  §13, State and Local Taxation (2001)].
  36. Rather than eliminated.
  37. See Medeiros, supra, at 973 P.2d 741; Nuclear Metal v. Low Level Radioactive Waste Mgmt. Bd., 421 Mass. 196, 656 N.E.2d 563, 570 (1995).
  38. See Ripperger v. Grand Rapids, 338 Mich. 682, 62 N.W.2d 585 (1954).
  39. See Jones v. Water Commission of Detroit, 34 Mich 273, 275 (1876).
  40. See Safe Auto Ins. Co. v. Berlin, 991 A.2d 327 (2010).
  41. See Rizzo, Id.
  42. See Nuclear Metals, supra.
  43. The fee was adopted to defray some of the costs the Honolulu police department incurs to conduct thousands of criminal investigations, and the many hours testifying at the criminal trials of individuals arrested for those crimes (see Medeiros, supra, at 973 P.2d 738).
  44. See Medeiros, supra, at 973 P.2d 740-742.

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