Tax chair: keep BPT 5%, nix 2% sales charge

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“You can’t go after taxes in the form of adding more taxes!”

Guam – Chairman on Taxation Sen. Joe San Agustin has confirmed the following changes to pending repeal legislation aimed at nullifying a two percent sales tax before it takes effect October 1:

  • The sunset provision on a temporary business privilege tax increase has been dropped, within a new version of the original repeal bill. This means the BPT would remain at five percent—even at the beginning of the next fiscal year, when the percentage is officially due to expire and drop back down to four percent—in order to give way to the permanent two percent sales tax already established by Public Law 34-87. By way of that same statute, the BPT increased from four to five percent on April 1, but only till September 30, in order to make way for the imposition of the forthcoming sales tax, which is still slated to take effect October 1. The current law is designed to help fund the Guam Memorial Hospital Authority’s operations and modernization at GMH; to buttress the Dept. of Education’s capital needs; and boost GovGuam’s general fund “to address the tax base erosion resulting from the passage of the Tax Cuts and Jobs Act of 2017”.
  • The apparent rewrite of the pending repeal legislation maintains its chief objective to eliminate the new sales tax before it’s triggered on the first day of FY19, according to San Agustin.

Plan of action

San Agustin told Newstalk K57 radio personality Phill Leon Guerrero on Tuesday afternoon that even if the new sales tax repeal bill fails to make the Committee on Rules this week, then San Agustin himself will move to include the new version of the bill on next week’s legislative session agenda.

Meanwhile, Sen. Michael San Nicolas’s original sales tax repeal bill, No. 262-34, presumably remains in San Agustin’s Committee on Education, Finance and Taxation.

Mounting concern follows Monday’s announcement by Guam Memorial Hospital administrators that they’re still counting on the new sales tax to take effect after September 30, in order to help fund hospital repairs and upgrades, as well as carry out emergency management objectives as the GMHA attempts to retain threatened Joint Commission accreditation and critical Medicare funding.

Above the fray

Failing the permanency of the sales tax, it’s unclear whether the Calvo Administration will be forced to declare a state of emergency at Guam Memorial Hospital. Pacific News Center waited from Tuesday morning through the PNC News First Tuesday evening telecast to hear back from Adelup, and PNC is still waiting.

The thick of it

Leon Guerrero pressed San Agustin to clarify the new measure, so people clearly understand that the new language would make the temporary single percent BPT hike permanent before nixing the two percent sales tax altogether.

“Now, I can already hear the kneejerk reaction to this that’s saying, ‘now wait a minute—so basically, you are foregoing a new tax simply because you’re continuing the old tax,” Leon Guerrero said.

“And I think something that is driving this policy proposal from you is something everyone is also harping about, and that is: ‘don’t try to fool us into thinking that benevolent small businesses are going to reduce their prices just ‘cause it’s the right thing to do before we tack on a two percent sales tax, just because the BPT increase sun-setted out.’”

“That’s correct,” San Agustin said. “I was talking to business owners and…they’re claiming it’s not only because of the BPT. But, you know, my colleagues have stated, based on a [similar] occasion that…in the past when the GRT [gross receipts tax] was based on four to six [percent], and then when they reduced them to four, did the prices go down? No! The prices went up instantly…and I didn’t see that going down!

“So to avoid the impression that everybody seems to be getting—is that they’re gonna be double-taxed—with the sales tax. You know, you got a four percent [GRT], you add a two [percent sales tax], and that means you’re at six percent.

“But, you know what? Today the government has been hiring more folks, they’ve been doing a lot of spending, and we’re supposed to be broke. So now we’re beginning to have enough money. It’s quite evident, there is enough money. And it’s a matter of the reorganization of the right sizing of the government, the [proper] management, and then they’re talkin’ about ‘GMH needs money! GMH needs money!’ Well, there was money!”

The backfire concern

Asked whether he foresees any members of the sales tax repeal coalition rescinding their support for the rollback because of what Gov. Calvo might characterize as the new BPT “poison pill,” San Agustin said the discussion inspiring proposed amendments is nothing new.

“Well, I look at it this way, number one, when they did the public hearing, there was discussion germane that we lift the sunset [on the BPT increase], and folks [in support of]repealing the sales tax is one. There were folks that were supporting the lifting the sunset and keeping the five percent. So it’s within the committee to make the appropriate amendments and submit it to the COR [Committee on Rules],” San Agustin said.

“Now, at the same token, there are folks that are saying they oughtta consider maybe increasing the BPT. I’m here to tell you right now, Phill, I’m in support of repealing the sales tax.”

But apparently all cards are on the table. San Agustin went so far as to suggest that yet another amendment is being considered to reduce the BPT. Be that as it may, San Agustin indicated that the thrust of forthcoming amendments will focus on retaining a five percent business privilege tax.

“And there’s no proof of how much we’re short, other than GMH—it needs money, DOE needs money to get Simon Sanchez [High School] built,” San Nicolas said. “So, let’s [repeal] the sales tax, again, and let’s just work with the five percent, and if they need money for GMH, then take it from that one percent that was added to the BPT.”

Leon Guerrero asked the senator to explain how keeping the five percent BPT rate in place is going to make up for a $120-to-$160 million budgetary shortfall projected for next fiscal year, purportedly due to the treasury-cratering effects of the Trump Tax Cuts.

“Let’s talk next steps, Senator. The five percent BPT—that one percentage increase on what’s already been allocated and reserved for bond payments—that one percentage point is not going to come to $120 or $160 million in a fiscal year,” Leon Guerrero said. “How are you thinking we are going to bridge the gap, come next year, in the shortfall blamed on the Trump Tax Cuts is going to be even larger than it was this year [at a projected $67 million FY18 deficit]?”

“Well, you know, I look at it this way, Phill,” San Agustin said. “We’ve got an election going on. There’s going to be a new governor. Maybe the current lieutenant governor may be governor, or one of the Democrats will be the governor. Everybody’s saying that we need to increase collection in taxes. That’s gonna offset. And then there’ll be some stabilities. And then there’s the [military] buildup going on, the construction boom is gonna start happening…there’s a lot of events that are happening that we have to just bank on that’s gonna keep us all together. You know, you can’t go after taxes in the form of adding more taxes!”

San Agustin said an attempt will also be made to repeal the recent liquid fuel tax that increased the price per gallon for motorists gassing up at local filling stations.