The Department of Revenue and Taxation is facing tax refund legal action from at least two companies. Both have filed cases in federal court against the government of Guam for money owed due to the overpayment of income taxes they have yet to be paid.

A growing number of businesses — instead of waiting for years to receive a refund on overpaid taxes — are now taking the only alternative they have under the Organic Act for Guam which is to file suit in the U.S. District Court of Guam.

QBE International Ltd. an insurance company which is due to leave the island filed a complaint on March 4 followed four days later on March 8 by Guam Tokyo Express Inc. more commonly known as JALPAK International Micronesia Inc.

While both complaints are similar in nature — asking the federal court to order the local government to live up to its obligations “to timely and fairly pay out with interest” tax monies overpaid in prior tax years each complaint has some peculiarities.

QBE Insurance announced in September 2003 that it would stop writing policies in the Mariana Islands on Oct. 1 and cancelled some policies mid-term (See “Aviva withdraws from Marianas in the Jan. 12 issue of the Journal.) That company offered and outlined to the department a proposal that would have allowed monies owed to be applied to future years’ payments.

In 1999 QBE elected to have its entire overpayment of $144 694 credited toward estimated tax for the year 2000 but the company incurred a business loss in the amount of $493 442 which equated to another overpayment of $254 694. This amount comes from the 1999 tax overpayment combined with QBE’s 2000 estimated tax payments in the amount of $110 000.

Again rather than receive a refund QBE elected to have the growing entire overpayment of $254 694 credited towards its estimated tax for the year 2002. However on Jan. 18 2002 QBE filed an amended U.S. Corporate Income Tax Return for 1999 seeking an entitled refund in the amount of $167 770. Then on Jan. 30 2002 QBE filed an application for quick refund of overpayment of estimated tax seeking to be paid its refund in the amount of $254 694 for 1999 and 2000.

As noted QBE incurred a business loss in the amount of $490 677 for 2001 had to that date overpaid taxes amounting to $254 694 and had elected to have the entire overpayment credited towards its estimated tax for 2002.

On Nov. 20 2002 QBE received a cash refund for the tax year in the amount of $167 770 as claimed on its 1999 tax return.

In January of 2002 QBE attempted without success to obtain a cash refund from the department for the overpayment of $254 694 still owed for years 1999 and 2000.

As an alternative to the refund QBE’s complaint states it proposed an alternative to the department. “If DRT agreed to apply Plaintiff’s [QBE] overpayment of $254 694 against its future gross receipts tax liability QBE would waive any accrued interest it may be entitled to in connection with the refund due and owing to Plaintiff.”

The complaint further said “DRT by and through its then acting director George V. Cruz verbally agreed to Plaintiff’s proposal.”

For months several discussions were held between representatives of both parties and QBE continued to pay its gross receipts tax liability despite the alleged verbal agreement with Cruz.

On July 1 2003 QBE filed its tax return for the year 2002 which reported that it had no taxable income for that year. This time however QBE asked to have refunded the total amount it had overpaid since 1999 — $248 591.

The complaint stated that on Dec. 2 2003 QBE through its counsel Donald V. Calvo requested a meeting to discuss the payment of monies owed. As of March 4 2004 the date the complaint was filed QBE said the department had not responded.

QBE stated in its complaint it made a final attempt to resolve the issue without instituting suit by requesting all parties meet to discuss the refund. It said if no attempt was made to contact QBE or its attorney it would file suit to recover money owed.

Now QBE is asking the federal court to order the department to pay the tax total of $248 591 together with interest and all court costs associated with the filing of the complaint.

As of April 22 the department had not filed an answer to the complaint and the district court had not yet scheduled a hearing on the issue.

In a separate but related request for return of overpayment of tax refund Carlos L. Taitano attorney representing Guam Tokyu Express Inc. which went out of business in September 2001 has joined a growing list of companies that have filed a complaint in federal court against the government of Guam.

In this case Guam Tokyu Express Inc. is asking for a total of $211 001 in overpaid tax money that it stated in its complaint had been owed since tax years 1996 1997 and 2001.
Taitano filed the complaint on behalf of his client on March 8 and stated in its prayer for relief that the department refused to pay the money owed.

The complaint states that $105 069 is owed for 1996; $46 812 for 1997; and $59 120 for 2001.

Taitano asked for $211 001 plus interest attorney’s fees and court costs.
As with the previous case the department has not filed an answer to the complaint and the federal court has not set a hearing on the case as of April 22.

On Feb. 12 a class-action suit was filed by a Guam taxpayer in the U.S. District court. That suit demanded that all unpaid refundable earned income tax credits for years 1998 through 2003 — approximately $112.4 million — be paid immediately as mandated by the Organic Act and Guam law (“See Class-action suit filed in federal court for tax refunds” in the March 8 issue of the Journal.).

Saiturex Guam Investment Co. Ltd. on Dec. 29 2003 asked the District Court of Guam for a judgment against the government of Guam in the amount of $360 516 plus interests fees and other costs (See “Wholesaler asks district judge for GovGuam tax refund ” in the Jan. 26 issue of the Journal.).

John P. Camacho acting deputy director for Department of Revenue & Taxation said that once a case is filed it becomes a matter for the attorney general’s office to handle. MBJ