Taxpayers who owe gross receipts tax to the Department of Revenue & Taxation should prepare to pay up.
The department will pursue that money in the same way it has begun to seek delinquent property tax payments.
There is a total of $52.5 million in gross receipts tax uncollected from active accounts.
Total inactive accounts receivable with the department total $41.36 million — which includes inactive gross receipts accounts.
The department is also owed $35.7 million for individual income tax $23.25 million for withholding tax [Medicare and Social Security] $11.5 million for corporate income tax — for a total of $122.99 million of active accounts receivable owed to the department. $164.36 million is the total of active and inactive accounts receivable owed to the department.
Artemio B. Ilagan director of the department said “Since I was appointed director in the acting capacity I have employed stricter efforts with respect to our collection and enforcement actions. DRT’s total accounts receivables include GRT along with other receivables such as individual and corporate income taxes. … As of Feb. 20 accounts receivable totaled about $164.3 million. The Department of Revenue and Taxation collected $26 million in FY 2004 compared to $9 million in FY 2003. This resulted from the hard working efforts of our employees.”
John P. Camacho deputy director of the department said “When we talk about GRT that means we have already gotten ahold of the account. We are already entertaining it. The collectors are doing their best to go after these taxes.”
He said when a business files a return and does not pay the department communicated with the taxpayer. “Usually we require a financial statement. Based on the financial statement we come to some sort of agreement as to how much will be paid on a monthly basis. One of the first things we do is put a lien on the taxpayer’s personal property or whatever assets they have. When you owe a tax whether it’s GRT or income tax or withholding tax and it’s a big outstanding amount then we try to go after the taxpayer’s assets.”
“These are the people who are not cooperating with the department. People who are cooperating have some sort of an agreement with the department — a payment plan. There are some people who have filed bankruptcy who we can’t do anything about. We’re doing a lot in terms of protecting the government’s receivables.”
Business accounts with the government could also be levied Camacho said. “For example if a business owes taxes and is receiving a check from the government of Guam for services rendered to the government we can levy that check. If Business X owes taxes expects a paycheck from the government and is not cooperating with paying taxes we would seize their check from the government.”
“The key to this is we need to communicate. We even have circumstances in which we give taxpayers time if they want to reconstruct their obligations. If they want to go to the bank to borrow to see if they can pay off the whole thing that’s fine — we give them time. We are willing to work with taxpayers as long as they work with us to pay their taxes. We do a lot of things to protect the government’s interest.”
The threat of placing a lien on property as a result of non-payment of property tax has had some results — together with publication of the names of delinquent tax payers.
Ilagan said “It cost the department $72 000 to publish the Real Property Tax Delinquent Roll publication. The notice was published on Feb. 2 and generated in excess of $800 000 of real property tax payments. The department is also preparing to follow applicable statutes of law to enforce the collection of delinquent real property taxes where ultimately delinquent properties will be sold by ‘operation of law ’ and tax-deeded to the government of Guam. A deed will be recorded with the Department of Land Management. What this basically does is prevent the property owner from refinancing selling or conveying the property until such time that the tax is paid.”
Problems continue to dog the department which has a list of issues Ilagan must face.
• The department has in excess of $25 million in corporate tax refunds for prior years that have yet to be paid out due to financial constraints.
“It was the intent of this administration ” Ilagan said “To pay out the prior year corporate refunds with monies derived from a bond issuance last year. The bond issue has been contested by the office of the attorney general and is currently at the 9th Circuit U.S. Court of Appeals. The case will be addressed by the court sometime in April or May of this year.”
Ilagan will also have to respond in the U.S. District Court of Guam to a request for a judgment by Saiturex Guam Investment Co. Ltd. The import and export wholesaler is taking the government of Guam to court to try and retrieve $360 516 — plus interest and costs — due for 1999. (See “Wholesaler asks district judge for GovGuam tax refund ” in the Jan. 26 issue of the Journal.) In addition a class-action suit was filed on behalf of 5 000 taxpayers who are owed $112.4 million in unpaid refundable earned income tax credits for the years 1998 through 2003 (See story on Page 11.).
• Section 30 money may help to improve the department’s balance sheet. Section 30 money for 2001 was $56.2 million and for 2002 was $55.4 million. Section 30 money for 2003 is forecast at $54.6 million. Joaquin P. Perez chief of staff for Madeleine Z. Bordallo Guam’s delegate to Congress said “No one has a good handle yet on the taxes deducted from federal employees who were on Guam whether they were permanent or on temporary assignment duty. Some of it but the bulk of what has to be looked at would be the taxes paid by armed services personnel who are here on training cycles i.e. the B1 and B2 bomber crews that were here on forward deployment during Operation Iraqi Freedom and other military troops that may have been sent here to perform any form of work.” Perez said Bordallo was looking at several issues which related to Section 30 but was not yet in a position to comment on them.
Ilagan said Rev and Tax was examining Section 30 monies. “The department is currently working with the IRS to reconcile [Section 30 funds particularly with the Guam Guard and Reserve components. Section 30 funds are federal income tax withholding amounts that are returned to Guam by virtue of Section 30 of the Organic Act of Guam and U.S. Treasury Regulations.].
• Reporting issues: what will happen with how frequently businesses will report GRT to the department is still not clear.
“Bill 267 was heard yesterday [March 1] ” Camacho said “It looks like they’re pushing it because the main issue is the rollback on GRT that everyone wants. The main bill was to roll back the GRT from 6% to 4% but the bill will also require businesses to file GRT and use taxes monthly once again instead of quarterly. Last year they reduced the exemption amount from $50 000 to $35 000; Bill 267 is proposing to restore exemptions back to $50 000. Also part of the bill heard yesterday is to require all taxpayers to file GRT returns whether taxes are owed or not. Only taxpayers that owe taxes are required to file; this bill is going to require that everyone files whether they owe or not.” Camacho said this requirement was to help properly track the income of all taxpayers exempt or not.
Previously before the Dave Santos Act everyone engaged in business on Guam was required to file and pay monthly GRT returns. Ilagan said “The GRT is a tax for the ‘privilege of doing business on Guam ’ and all taxpayers prior to the Dave Santos Act were required to file and pay GRT when there is a tax due. This changed after 1998. When the Dave Santos Act took effect it changed the manner in which to file report and pay the GRT. It complicated the process by requiring different classes of taxpayers to report file and pay GRT and compounded our efforts to track GRT revenue and enforce the GRT tax laws of Guam.”
Now Ilagan said instead of depositing monthly businesses file quarterly. He said the data was compiled every three months from quarterly returns and department staff was faced with four complex returns per year versus 12 simple ones. “There is no staff to handle this workload.”
Camacho said “With the quarterly collection there’s no tracing of category of income by month. One of the things we like to see is income by month. Doing it monthly is valuable as far as forecasting and presenting data for government use — to evaluate the economy etc.”
Ilagan said the department was still considering on-line filing. “We are still looking into the implementation of the concept of filing on-line but have been unable to pursue this at this time due to financial constraints.”
Camacho said however “Bill 267 will accommodate businesses to file electronically this coming October. We’re in the works right now to start accepting credit cards for payment of taxes and later this year we’ll accept payments via computer. If this bill were to pass 267 would solve a lot of problems.”
• The department is also understaffed.
Ilagan said the 2003 administration saw a significant decrease in employees dropping from 350 to 135. But this number was increased back to 250 employees after obtaining stronger funding for the department. “As with most government agencies I was faced with limited personnel and resources to effectively collect these taxes. What I did was convince our legislators and the administration that resources must be invested in DRT to realize the returns the government was looking for. After they agreed I tried to recruit and hire personnel such as collectors and auditors and also put personnel in positions where they would be effectively utilized.
“These factors contributed to the increases however one important thing to note is that with new personnel training must be given before they can master the technical skills to audit and collect effectively. This cannot happen overnight and should be emphasized to our island community.”
Ilagan says the tax enforcement division and the examination branch have made progress towards raising staffing levels. “The tax enforcement division is made up of three branches: examination branch collection branch and criminal investigation branch. For several years this division had been understaffed and could not effectively perform their duties. Efforts have been made to recruit and hire personnel in these areas and some hiring has already occurred. As you know already aggressive collection efforts have shown through the increases generated by the Collection Branch.”
The examination branch has also hired eight new Revenue Agents. He said “With these new hires alone they have already generated about $70 000 of new taxes through their audits. These RA’s have only gone through the first unit of training and these taxes resulted from on-the-job training cases. As for the Criminal Investigation Branch the investigators are conducting investigations on potential crimes to be recommended for criminal prosecution. Overall TED has been revitalized by utilizing personnel where they can be effective so as to instill voluntary compliance with the tax laws and regain public confidence in our tax system.”
As for future goals of the tax enforcement division Ilagan said the department aims to “recruit and hire more qualified personnel to fill the needs of each branch so as to increase the much-needed tax collections and revenues conduct audits effectively from individuals corporations and specific industries and to investigate and prosecute tax violations on Guam.” MBJ