Public Auditor calls for repeal of tobacco tax provision

Public Auditor Benjamin Cruz

Public Auditor Benjamin J.F. Cruz has sent a letter to the Legislature calling for the repeal of the tobacco tax provision requiring bonded warehouses.

By repealing this provision, Cruz said tobacco tax collections will improve and fairness will be promoted amongst the island’s five tobacco wholesalers.

Under current law, when tobacco products are discharged from its shipment, a tax is charged and collected. The law allows tobacco wholesalers to delay tax payments on its products until after they are discharged from their bonded warehouse.

However, in order for the wholesalers to store or withdraw from their bonded warehouse, they need to do it in the presence of an employee of the Department of Revenue and Taxation.

In OPA Report 18-04, which covers the Department of Revenue and Taxation Tobacco Tax, the OPA audit found that DRT was not assessing the tobacco tax during the storage and withdrawal of the tobacco.

In addition, Cruz said DRT was also not verifying the wholesalers’ tax filings against the withdrawal from the warehouse.

In light of the recent news pertaining to DRT’s staffing, technology needs, and tax collection efforts, Cruz said now is an opportune time to review and repeal the provisions of the law requiring bonded warehouses.

“By repealing the need for a bonded warehouse, we could improve tobacco tax collections by taxing all tobacco products when they arrive on our shores. This would eliminate the need for DRT employees to verify what comes in and out of the bonded warehouse and free them up to pursue other priorities of the agency,” Cruz said in a news release.

The OPA letter was sent to Sen. Sabina Perez who chairs the Legislature’s committee on environment, revenue and taxation, and procurement.