The Department of Revenue & Taxation intends to aggressively collect taxes now paid in the U.S. mainland on work performed on military installations on Guam.
The move has the department considering liens a levy on wages and prosecution of the officers of the corporation.
Artemio B. Ilagan director of the Department of Revenue & Taxation told the Journal “We understand that billions of dollars are planned for construction projects on Guam in the very near future. We have established a special task force whose job is to ensure that [off-island] contractors will be identified and briefed as to Guam’s unique tax status ” he said. “We want to make sure that our share of withholding tax and GRT is rightfully paid to the Treasurer of Guam and not to the U.S. Treasury.”
Presently that money goes to a variety of states paid by American companies in their home states.
Guam keeps all federal taxes as well as applicable local assessments like the 4% levy on gross receipts. Guam receives Section 30 payments from the U.S. government which represents federal civil service employee wage withholdings that is given directly back to the territory by the Internal Revenue Service. The tax code mirrors the federal system but money stays on island.
The Journal met with Artemio B. Ilagan director of the Department of Revenue & Taxation and his senior management team to hear the department’s plan to retrieve tax money that presently goes off-island.
Ilagan said there have been problems in the past with companies that paid tax monies directly to the federal government. He would not say how much he believed had been paid in that fashion but that his team is trying to recoup the misdirected tax monies.
Paul J. Pablo tax enforcement administrator told the Journal that a joint task force comprising of audit and collection branch revenue agents and officers was formed in September. Pablo’s job is to meet and identify off-island contractors and inform them of Guam’s tax status.
“We are communicating with the military to identify who these contractors are that are either currently performing work or will be in the near future ” Pablo said. “We have been identifying some of these big companies who have come out and have been providing construction services under contracts with the military bases and found out they were paying their wage and withholding taxes back to the federal Internal Revenue Service.”
Pablo said the department had written to off-island companies performing work on Guam and explained that because the employees wages are earned on Guam the withholding is to be paid here. “The remedy for that was for the contractor to file a claim with the IRS and if the statute of limitation had not run out IRS would reimburse them and then they would pay their wage and withholding taxes over to us.”
John P. Camacho deputy director of the department said “There are a few that most likely have escaped but that is what the task force will be identifying and going after.”
He credited Ilagan with having the foresight to set up the joint task force prior to the expected military construction boom. “We want to be up and running before all of it happens and not lose out on money rightfully due the territory.”
As for the statute of limitations Camacho said the law is generous. “If a company has never filed with us then that means there is no statute of limitations and we can go after these people four five or six years down the line.”
The same is true for gross receipts taxes he said. “If they haven’t filed GRT then it’s open season but if the company is no longer here then it gets more difficult.”
Ilagan said his task force is contacting the various executive officers at the military installations and asking for specific information on past military base contracts to see if in fact the private contractors are in compliance.
“We have already met some resistance because we were told to file a Freedom of Information request which is filtered through military lawyers and that is not what we are looking for ” Ilagan said. “We are asking for what should have been reported to Guam because Guam is the taxing jurisdiction for these corporations.”
Pablo said the department is setting up a Web site that will be operational by January. “This will be helpful for companies coming this way. We can publish all the taxing requirements in one place. The small off-island contractors can get the information they need we catch the problem up front and it doesn’t become complicated later on.”
Ilagan said the task force is intending to research back to 2000 to see if all companies performing work on Guam have complied with local tax laws. “I’m not prepared to give an estimate of how much money is outstanding. That is going to take some in-depth analysis but it could be a considerable amount.”
Camacho said that off-island contractors hired to perform work on military installations are required to have a Guam business license but not a local contractors’ license thereby eliminating one method of tracking the companies.
“In the past we have discovered that businesses have done construction work on the military bases and have tracked them down. What we found is that they were simply unaware of the requirements to file on Guam because the books were being handled in the mainland.”
Ilagan has emphasized collection since he took over directorship of the department. Since taking office in January 2003 the tax enforcement division collected $18 278 502 in fiscal 2003; and in fiscal 2004 the branch nearly tripled collections by collecting $44 988 600.
Sen. Frank B. Aguon Jr. vice speaker and chairman of the Committee on Appropriations & Budgeting General Government Operations Reorganization & Reform of the 27th Guam Legislature told the Journal he has instructed his office to research what he called this sensitive matter. “At least the federal portion of their taxes could be reimbursed back here.”
Aguon said that continued dialogue with Madeleine Z. Bordallo Guam’s delegate to Congress would be necessary as the issue is a federal matter.
There are a number of other collection methods the task force can use if a business does not want to comply. “We can place liens to protect the government’s interest. We can assess a levy on rental incomes or on wages if necessary and in some cases we can go after the officers of the corporation ” Aguon said.
Ilagan said whether the department found collection of the withholdings a prolonged and difficult task it would press ahead. He said “It’s the law and they are going to comply whether they like it or not.” MBJ