Adelup: Without legislative authority, land tax increase may be challenged

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L-R: Lt. Gov. Josh Tenorio, Gov. Lou Leon Guerrero, and Edward Birn, Acting Director of the Dept. of Administration, talk about the fiscal climate and the governor's financial priorities.

Guam – About 500 landowners may need to prepare for a second land tax bill, now that the Leon Guerrero administration is officially requesting legal authority to retroactively enforce higher real property tax rates.  

Retroactive raises cost several senators their seats in 2016.  Will retroactive taxes have a similar political fallout? The ‘r’ word was invoked once again at a public hearing today on Bill 4-35: a measure meant to correct an improperly enacted increase in property taxes.  

Lester Carlson, the Acting Director for the Bureau of Budget and Management Research formally requested senators to amend the so-called “Or More” bill to apply the language explicitly to tax bills that already have been sent–bills that are due for partial payment in a matter of weeks.  According to Carlson, the new statutory authority would prevent taxpayer challenges to the bill being retroactive.

“I would urge you to take the effort to ensure that upon passage of this bill, that there–the Department (of Revenue and Taxation) is not besieged with disputes because the language is clear: that the superseding assessment is valid and enforceable,” Carlson proffered to lawmakers.  

But a good portion of the public hearing was devoted to Acting Director of Rev & Tax Dafne Shimizu explaining how the new real property tax rate will be applied.  Republican lawmaker Wil Castro was walked through the process once.

“I just wanted stated for the record and for my understanding–my edification.  Are land improvements recorded separately from real property itself–from the land itself,” he asked Shimizu.

“With regards to land improvements versus the land itself, when you get your real property tax bill, you’ll actually see a section called ‘land tax’ and a section called ‘building tax.’ And so you’ll see them separate on your bills.  So, yes. They are separate on the bills,” she replied.

But Castro pressed for an answer to the same question a second time.

“If someone had a piece of private property–let’s say for the sake of farming or ranching.  But the property itself is valued at $1 million, but the structure on it–where they store the produce, is valued at, let’s say $50,000.  So that’s $1,050,000. Would they be subject to this additional tax levy?”

“The way that the language (of the law), as I read the language, it’s actually adding another 7/18 for the land improvements only,” Shimizu responded.  “That’s how I understand the language here.”

But even with consistent answers, Castro questioned the process for a third time.

“To be abundantly clear, if properties valued at $1 million–private property, is it subjected to this additional clarification?  Is it one in the same, or is it bifurcated? I heard Chairman (Joe San Agustin). He said if it’s a $100,000 property and you build a five-story structure–hypothetically, and now that structure is valued at, let’s say $950,000, you’re up to a $1,050,000 and change.  Is that how this is treated?”

For the third round, Shimizu broke it down with hypothetical examples.

“Let’s say Mr. Carlson owns a property–the total property (value) is $2 million.  So I also own a property, total property (value) is $2 million. And so, say Mr. Carlson’s home is $1.5 million.  So that means the land’s (value) is $500,000. But my home is $800,000. And that means that my property is (worth) $1.2 million.  So there is going to be a difference in terms of the way–again the way that I understand the law, there is going to be a difference in terms of–so he will actually receive an additional bill that’s going to be equal to 7/18 of the value of the $1.5 (million dollar improvement).  But I will not receive an additional bill, an additional invoice for the 7/18 because the value of my property is only $800,000. Because again, as I read the law–it’s really only on improvements,” Shimizu clarified once again.

“Is that better senator,” Shimizu queried.

“I’m just glad you stated it three times for the record and what I’ll do is I’ll get with the chairman.  I’m sure he’ll spend some extra time on a roundtable at his choosing so I can understand this for myself.  Thank you so much; I appreciate it,” Sen. Castro said, signalling the end to the repetitive exchange.

Shimizu told senators retroactive real property tax bills would be sent to owners of about 520 properties should this measure become law.  If not enacted into law, the omission of the words “or more” is estimated to cause a loss of $9 million in tax revenue for education agencies and programs.

A measure to expand tax exemptions for small businesses was also discussed at today’s public hearing.  Bill 1-35 received support from the Leon Guerrero administration, but Guam Economic Development Authority Acting Administrator Melanie Mendiola cautioned lawmakers that any reforms to the business privilege tax must not violate any existing bond covenants.