Public Auditor says we should revisit tax exemptions for wholesalers

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Public Auditor Doris Flores Brooks says it’s time to take a close look at whether or not wholesalers subcontractors and other exempt businesses should begin paying GRT’s like everyone else.

Guam – Local laws, some passed back in the 70’s, have made certain businesses exempt from paying the Gross Receipts Tax (GRT) which has resulted in a loss of at least $70 million dollars in taxes a year for GovGuam and over $210 million in taxes over the last three years alone.

“I know the legislature has been talking about raising taxes. Something to think about is whether or not before we raise let’s have everybody pay taxes,” said Public Auditor Doris Flores Brooks

A three-year audit by the Office of Public Accountability has found that GovGuam has lost out on hundreds of millions of tax dollars over the last three years because of tax exemptions that are afforded to certain businesses. “On average tax exemptions, we’re having foregone revenues of about $70 million a year based on just tax exemptions,” said auditor Llewelyn Terlaje. This amounts to over $210 million dollars of lost revenue over the last three years.

“We did identify the top five and number one by far is the wholesalers because they get 100 percent exemption. I believe, followed by retailers, off-island sales and the Dave Santos or the small business exemption,” said Terlaje. Other businesses with GRT exemptions include subcontractors, and base operation and support contractors. Rental income and insurance payouts are also exempt. Even alcohol and tobacco sales to the military are exempt.

“Wholesale is the lion’s share. It makes up just under 50 percent of the total exemptions and I guess overall, I did not realize how much the government has exempt. You know $70 million dollars a year is a lot of money that is not being taxed by the government of Guam,” said Brooks.

So, when and how did wholesalers and other businesses get these tax exemptions? Department of Revenue and Taxation Director John Camacho says “For example, the wholesalers, it’s been exempted for many years. I think back in the 70’s and it’s been growing for many years and I think the Public Auditor looked at the last three years for all these exemptions and it’s pretty big in other words.” The Public Auditor said, “It’s time for us to look at and evaluate. This is the role of policy being the legislature the administration whether these, the rationale for exemption 20, 30 years ago does that rationale still hold today?”

PNC asked what the rational was when the laws were passed exempting wholesalers from paying GRT’s. “As best that I can remember it was quote double taxation. Because a wholesaler is paying the GRT and then the retailer will have to absorb that cost in the retail price. So, the question to ask is did the people of Guam benefit by lower prices by not taxing wholesalers? Again, that’s information that needs to be debated and talked about. I don’t know. Most people will say in general they didn’t see a drop in prices. Most people that can remember that,” replied the Public Auditor adding, “And as we can see today. A loaf of bread is what four dollars? Five dollars compared to what it was 20 years ago.”

The OPA says there were a lot of inconsistencies with the information they were provided for years prior to 2013 which had something to do with reconciling data between Rev&Tax and the Department of Administration.

So, what are the OPA’s recommendations? “To kind of resolve those in-house corrections that are needed with the systems but also to kind of because we did list some best practices here for the Legislature and DRT management to consider them when it comes to reporting the tax exemptions,” said Auditor in Charge Clariza Roque. “And to continue more monitoring, more scrutiny because they claim they’re doing it but when we ask these what happened here what happened here they couldn’t answer the questions. More monitoring and review of tax exemptions to make sure people who claim these exemptions are eligible to claim these exemptions.”

The Office of Public Accountability actually tried to do the audit in 2013 but the data was unreliable so the actual amount of taxes that GovGuam has lost out on over the last few decades is uncertain.