Nonexchange revenue under GASB 33: derived tax, imposed, government-mandated and voluntary

• Classify a revenue into one of the four Statement 33 classes
• Determine the recognition point for derived tax and imposed nonexchange revenues
• Apply eligibility requirements to government-mandated and voluntary nonexchange grants
• Calculate grant revenue in both the government-wide and fund statements

Exchange or nonexchange

In an exchange transaction each side gives and receives equal value, such as water sold at a metered rate. Exchange-like transactions (licenses, permits, many fees) are accounted for the same way. In a nonexchange transaction a government gives or receives value without directly receiving or giving equal value in return. Taxes, most grants and donations are nonexchange. GASB Statement No. 33 sets the accrual-basis rules, and Statement 36 later aligned how recipients report shared revenues.

The four classes

Statement 33 groups nonexchange transactions into four classes:

1. Derived tax revenues: taxes on exchanges, such as sales taxes and income taxes.
2. Imposed nonexchange revenues: assessments on nongovernmental entities that are not based on an exchange, such as property taxes and fines.
3. Government-mandated nonexchange transactions: one government provides resources to a government at another level and requires them to be used for a specific purpose, such as a program the recipient must carry out.
4. Voluntary nonexchange transactions: arrangements entered into willingly, such as most grants and donations.

Recognition by class

Derived tax revenues are recognized when the underlying exchange happens. The Board's reasoning: without the merchant's sale, no revenue would flow to the government. June sales produce June revenue even though the state remits the tax in August. Amounts are recorded net of estimated refunds, and the year-end accrual rests on estimates of tax due on sales near year end plus actual receipts.

Imposed nonexchange revenues: the asset is recognized when the government has an enforceable legal claim or receives resources, whichever comes first. Property tax revenue is recognized in the period for which the taxes are levied, net of estimated refunds and uncollectibles, even if the lien date or due date falls in another period. Taxes collected before the period they fund are deferred inflows.

Government-mandated and voluntary transactions are recognized when all eligibility requirements are met. Those requirements are:

• required characteristics of the recipient (for example, being a school district);
• time requirements (resources may be used only in or after a specified period);
• reimbursements (allowable costs must be incurred first, so expenditure-driven grants are recognized as costs are incurred);
• contingencies, for voluntary transactions only (for example, raising matching funds).

Purpose restrictions do not delay recognition. They result in restricted net position or restricted fund balance instead. Cash received before the other eligibility requirements are met is a liability (unearned revenue). Cash received after those are met but before a time requirement is met is a deferred inflow.

Modified accrual overlay

In governmental funds, the Statement 33 criteria must be met and the revenue must also be available. A reimbursement grant whose costs were incurred in June but whose cash arrives in December is government-wide revenue in June but a deferred inflow in the fund at year end if December is outside the availability period.

Shared revenues

When a state shares a portion of its sales tax with cities, two transactions occur: the state imposes the tax, then it shares part of it. Statement 33 treats the sharing as a government-mandated or voluntary nonexchange transaction for the provider. Statement 36 superseded paragraph 28 of Statement 33 so that the recipient accounts for the sharing the same way as the provider, which removes timing differences between the two governments. It also dropped the old rule that a recipient without timely notice accrue only the cash received; the recipient now accrues a reasonable estimate. A city receiving a state-shared tax therefore estimates its year-end accrual from the state's remittance reports and its own collection history.

Audit procedures

• Map each material revenue source to a class and agree the recognition policy in the notes.
• Sales and income taxes: test the accrual against receipts from the state for the first months of the next year.
• Property taxes: agree the levy, the lien and due dates, and the period for which the levy is made.
• Grants: read the agreement, identify eligibility requirements, and match revenue to allowable costs incurred. Federal awards then flow into the single audit work described in the single audit walk-through.

The fund accounting guide shows the related journal entries.

Sales tax and a reimbursement grant at Maple County