In a word, no!

As elsewhere explained,

“In a nonexchange transaction, a government gives (or receives) value without directly receiving (or giving) equal value in return¹. This is different from an exchange transaction, in which each party receives and gives up essentially equal values.”².

Although “business-type activities financed in whole or in part by fees charged to external parties for goods or services (furnished) are usually…reported in enterprise funds (as)…exchange transactions…non-exchange revenues (are)…characteristic of a governmental fund (where taxes are reported) rather than a business-entity type fund.”² And for this reason GASB Statement No. 33 instructs that there are “four classes of nonexchange transactions 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).”

Of the four (4) classes above, the one that most closely describes the RFF/BFF is class 3; “assessments imposed on…individuals, other than (those) assess(ed) on exchange transactions.”

Well it turns out quite a number of finance professionals have come to the conclusion the RFF/BFF are the product of nonexchange transactions, including the District! And why do these conclusions matter? Because the seminal trait of a legitimate “fee” is that it is charged

“In exchange for a particular governmental service” which specially benefits the party paying the fee³ in a manner “not shared by other members of society.”⁴

So as elsewhere explained, without some special benefit, forced monetary exactions on transactions other than exchange transactions (like these) cannot be and are not fees⁵!

Note 1(T) in The District‘s FY 2020 Annual Comprehensive Financial Report (“ACFR”): In order to determine the true “operative effect”⁶ of the RFF/BFF, we should look to staff admissions in the District’s ACFRs. Such as these at Note 1(T):

“Each year, the District establishes an annual Recreation Facility Fee and Beach Facility Fee to be collected from property owners within the District through a levy placed on the property tax bill and collected on behalf of the District by the Washoe County Treasurer’s Office. These fees are established based on the revenues required to (financially) support debt, capital expenditure and operations for the District’s various recreation and beach facilities. These revenues, (when) combined with service charges collected by the District for facility use and program activities serve to support the operations of the District. These revenues are recorded as general revenues within the governmentwide statement of activities as opposed to charges for services…as required, to (financially) support actual expenditures.”

In other words, this language is an admission the RFF/BFF are not the “fees” District staff and past Board members have represented because they don’t represent charges for facilities or services. Rather, as we have stated elsewhere, they cover the financial shortfall between Community Services and Beach Fund revenues and intentional overspending, respectively.

Note 1(T) in The District‘s FY 2021, FY 2022, And FY 2023 ACFRs: Take a look at essentially the same note in the District’s FY 2021, FY 2022, and FY 2023 ACFRs. Therein the District repeatedly admits the RFF/BFF are the product of nonexchange transactions. These admissions should not be taken lightly inasmuch as according to page one of Management’s Discussion and Analysis (“MD&A”) letters for each of these fiscal years, we are instructed that:

The discussion and analysis which follows serve as “a narrative overview and analysis of the District’s financial activities for the fiscal year ended…” In other words, “essential additional information (necessary) to fully understand the government-wide and fund financial statements” which are attached.

Having been repeated so many times, it cannot be credibly argued that these admissions were a mistake.

Former IVGID Auditor DavisFarr‘s Admissions: The question over the distinction between exchange versus nonexchange transactions reared its ugly head at the District’s December 8, 2021 Audit Committee meeting⁷ over the propriety of reporting the RFF/BFF as general revenues. Cliff Dobler, a member of the Committee at the time, questioned the propriety of staff’s proposed “change in net position” labeling⁸ insofar as the District’s proposed 2021 ACFR were concerned. Mr. Dobler commented as follows:

This labeling is “really quite amazing (insofar as)…the…facility fee being considered ‘general revenue’ (is concerned)…given the resolution the Board adopts each year which assesses the RFF/BFF”⁹ recites that “the (RFF/BFF are) charges for services.” Mr. Dobler questioned why (here these “fees”) were reported as “general revenues” if they were really charges for services¹⁰? After all, page 22 of GASB Statement No. 9 instructs they are not properly reported as “operating revenues.”

Surprisingly, both Finance Director Paul Navazio and Auditor Jennifer Farr¹¹ responded by pointing to the distinction between exchange and nonexchange transactions “regardless of the terminology.” Ms. Farr instructed as follows:

“For something to be (a) charge…for services it has to be an exchange transaction…By (its) nature (the RFF/BFF are)…not…If you pay a fee to golf, that’s an exchange transaction. You’re paying a fee for a direct ‘something’ that is given to you. (In contrast) an assessment (such as the RFF/BFF) is never going to be an exchange transaction….Because (these fees were not the product of) an exchange transaction(s)…(Ms. Farr opined that facility fee revenue was) properly (reported) in th(e general revenue) category. (Moreover, and as additional evidence to support her position, Ms. Farr referenced with agreement the opinion of) our prior auditors [see the auditor EideBailly admission discussion below] (who) agreed with this assessment as well.”¹²

Given the District represents that the RFF/BFF are standby service charges, by definition this means they must be the product of exchange transactions. Yet here the District’ ‘s former auditor, DavisFarr, admits the RFF/BFF are the product of nonexchange transactions.

Former Finance Director Paul Navazio‘s Admissions: At the District’s same December 8, 2021 Audit Committee meeting⁷ former Finance Director Navazio responded to Mr. Dobler’s general revenue question (above) as follows:

The RFF/BFF were properly reported as “General Fund revenues…(specifically because they were not) generated by the activities of our (recreational) venues like…charge(s) for service(s such as)…skiing or golfing…(Because) these (charges)…(we)re not tied to use of the venues¹³…(and they we)re collected and assessed from property owners…they…(we)re properly reported where they (we)re”¹⁴ as general revenues. The key is that the RFF/BFF are “considered…non-exchange transaction(s)…(because) under the NRS, if there (i)sn’t a (special) benefit, we (can)not be assessing the recreation fee…(The RFF/BFF are) not the same as somebody paying for…services.” If that were the case, “we would not be allowed to charge the fee (because)…that’s a tax.”¹⁵

Wow! What both Mr. Navazio and Ms. Farr were admitting at the subject Audit Committee Meeting, was that because the RFF/BFF are not generated through exchange activities, they are taxes. And as such, they were properly reported as general rather than operating revenues. Given the District represents that the RFF/BFF are standby service charges, by definition this means they are the product of exchange transactions. Yet here the District’ ‘s former Finance Director admits the RFF/BFF are the product of nonexchange transactions and in fact taxes!

Former Auditor EideBailly‘s Admissions: It’s not just the District which has repeatedly admitted in its ACFRs that the RFF/BFF are the product of nonexchange transactions and thus taxes. Nor previous auditor Jennifer Farr and previous Finance Director Paul Navazio. Another one of the District’s previous auditors, EideBailly, has made the same kinds of admissions. On December 16, 2015, testifying before the IVGID Board’s Audit Committee insofar as the change from Enterprise to Special Revenue Fund reporting, Dan Carter (an EideBailly Audit Engagement Partner) testified¹⁶ as follows:

“There is specific guidance in GASB about what can and cannot be accounted for in a Special Revenue Fund…GASB (i)s trying to put in some pretty strict guidance insofar as when a Special Revenue Fund can be used…It is unusual up here (Incline Village) when we use the word ‘fee,’ like the Community Services Fee or the Beach Fee, (be)cause actually, technically it is a tax…So the fact there’s a restriction on the use of that tax money¹⁷ is exactly what a Special Revenue fund is used for.”

Wow again! After making this tax versus fee admission, understandably, staff and the then Board went into full damage control. After all, they couldn’t continue to legitimately promote their involuntarily RFF/BFF levy if those “fees” were actually taxes. Right? So on May 23, 2016, in a memo to the Chairman of the Audit Committee, and relying upon the distinction between exchange and nonexchange transactions, Mr. Carter attempted to “clarify” his prior December 16, 2015 testimony as follows:

“Enterprise Fund accounting is primarily used when exchange fees (for example, the fee to play a round of golf financially) support (enterprise)…fund(s). Special Revenue Fund accounting on the other hand, is used when imposed nonexchange fees [‘for example, property tax or other assessment(s)’]…result from assessments imposed by governments on individuals.” Because the payor(s) of these fees receive nothing of value in return…classification…may be more appropriately accounted for in…Special Revenue Fund(s).”

Wow cubed! Here the District’ ‘s former auditor, EideBailly, admits the RFF/BFF are the product of nonexchange transactions and in fact taxes!

But wait! There’s more.

Consultant MossAdams‘Admissions: In 2020 accountancy consultant MossAdams¹⁸ was engaged to review the District’s Punch Card Accounting and provide a report summarizing its observations and recommendations. During this engagement, review was expanded to incorporate how annual Facility Fees should be properly classified and reported in the District’s financial statements. Given “the historic issue and disagreement between IVGID management and citizens has been whether the (District’s) Facility Fees are (the product of) exchange or nonexchange transactions,” MossAdams issued a report which concluded as follows:

“The District’s Facility ‘Fees’ are the product of a non-exchange transaction under guidance provided in GASB Statement No 33 which generally provides for asset recognition when a resource is received or at the time a legal right to resources exist, and revenues recognized when all eligibility criteria are met securing the entity’s (here IVGID’s) right to the resource¹⁹. Since the Facility Fee is collected by Washoe County, secured by liens on property, and no requirement is placed on IVGID’s right to use the…Fees…the(y)…are deemed to be (the product of) non-exchange transactions.”²⁰

Conclusion: If so many finance professionals, as well as the District itself, have come to the conclusion the RFF/BFF are the product of nonexchange transactions, who are we to disagree? And if this conclusion means the RFF/BFF cannot be and are not fees²¹, what are they? Doesn’t Medeiros provide the answer? In other words, where “th(e) criteria (identified) fit the charge, it is a fee²². And where it doesn’t, it’s a tax²³. Given GASB instructs that monetary exactions the subject of nonexchange transactions do not exhibit the first prong of the criteria identified in Medeiros for fees²⁴, we have our answer to the question whether the RFF/BFF are taxes. Don’t we?

---

1. See Page 7 of Nevada Committee on Local Government Finance (“CLGF”) Guidance Letter 15-002 issued October 27, 2005.
2. See GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. GASB stands for the “Governmental Accounting Standards Board.” It is “the independent, private-sector organization…that establishes accounting and financial reporting standards for U.S. state and local governments that follow” Generally Acceptable Accounting Practices (“GAAP”) [see https://www.gasb.org/about-us]. Since 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 that GASB governs the financial reporting of the District’s RFF/BFF.
3. In other words, “the direct beneficiary of a particular service” (see State of Hawaii v. Medeiros, 89 Haw. 361, 973 P.2d 736, 742 (1999); Medeiros, supra, at 973 P.2d 742; Clean Water Coalition v. The M Resort, LLC, 127 Nev. 301, 315, 255 P. 3d 247 (2011).
4. See National Cable Television Ass’n v. United States, 415 U.S. 336, 341, 94 S.Ct. 1146 (1974). If the benefits furnished are as available to those who are not assessed, as those who are, there is no “special” benefit.
5. See Medeiros, supra, at 973 P.2d 742-745.
6. Recall that “Courts will determine and classify (monetary exactions) on the basis of realities” rather than label(s)…looking to their ‘operative effect.’”
7. The District’s livestream of its December 8, 2021 Audit Committee meeting appears at http://appears at https://livestream.com/ivgid/events/9991610 (“the 12/8/2021 Audit Committee livestream”).
8. See page 4 of the packet of materials prepared by staff in anticipation of the Audit Committee’s December 8, 2021 meeting (“the 12/8/2021 Audit Committee packet”).
9. An example of that resolution (for fiscal year 2022-23, i.e., No. 1893), appears at pages 228-231 of the packet of materials prepared by staff in anticipation of the Board’s May 26, 2022 meeting (“the 5/26/2022 Board packet“).
10. Mr. Dobler’s comments appear at 38:27-40:03 of the 12/8/2021 Audit Committee livestream.
11. The principal of the DavisFarr auditing firm.
12. See 41:25-42:44 of the 12/8/2021 Audit Committee livestream.
13. Thus in essence admitting they were not the product of exchange or exchange-like transactions.
14. See 40:07-41:24 of the 12/8/2021 Audit Committee livestream.
15. See 43:10-43:28 of the 12/8/2021 Audit Committee livestream.
16. The District’s livestream of its December 16, 2015 Audit Committee meeting appears at https://livestream.com/ivgid/events/4594653/videos/107172532 (“the 12/16/2015 Audit Committee livestream”). Mr. Carter’s testimony thereat appears at 13:03-15:29 of the 12/16/2015 Audit Committee livestream.
17. The alleged restriction being that the proceeds of that tax are paying for the “availability” of use of beach and public recreation facilities.
18. MossAdams is “composed of government auditors (CPAs) and tax specialists” (go to https://www.mossadams.com/industries/government-services).
19. MossAdams “find(s) that the classification of the Facility Fees in the government-wide statement of activities since 2015 as a general revenue is inconsistent with GAAP in that the fees are assessed specifically to finance the District’s recreational activities. (Moreover,) as such it meets the criteria to be reported as a program revenue in the statement of activities (see GASB Code Sec 2200.137)…If the District reports the recreational activities in enterprise funds, we recommend the fee(s) be reported as non-operating revenue” [see pages 057-061 of the packet of materials prepared by staff in anticipation of the audit committee’s June 1, 2022 meeting (“the 6/1/2022 audit committee packet“)].
20. See page 055 of the 6/1/2022 audit committee packet.
21. See State of Hawaii v. Medeiros, 89 Haw. 361, 973 P.2d 736, 742-745 (1999).
22. See Medeiros, Id.
23. See Clean Water Coalition v. M Resort, 127 Nev. 301, 315, 255 P.3d 247 (2011); Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1457, 929 P.2d 253, 256 (1996); State ex. rel. City of Reno v. Boyd, 27 Nev. 249, 256, 74 P. 654, 655 (1903); 71 Am. Jur. 2d §13, State and Local Taxation (2001).
24. “The charge (doesn’t) appl(y) to the direct beneficiary of a particular service” (it’s the product of nonexchange transactions).