How do we know if wholesalers are paying alcohol taxes, if they aren't even paying cigarette taxes?
By Troy Torres
If cigarette distributors aren't paying cigarette taxes in earnest, how far a stretch is it that alcohol distributors are evading alcohol taxes? In fact, the largest cigarette distributors also are alcohol distributors.
MidPac, which already has a tax lien for failure to pay cigarette taxes over a three year period during the Calvo administration, also is an alcohol wholesaler.
A little more than a year after the MidPac tax lien was publicly exposed, resident John Ryan filed a taxpayer lawsuit against three alcohol distributors alleging the companies failed to pay alcohol taxes. The November 2019 lawsuits included receipts as evidence the companies were selling alcohol at or below the tax on alcohol alone.
Ryan, in his lawsuit, alleged that "the failure to pay alcohol taxes is costing the Territory millions of dollars each year."
Parallel facts in the case of cigarette taxes were presented in two financial audits by the Office of Public Accountability, and in a letter in July 2018 by then-Speaker Benjamin Cruz. In his letter to the U.S. Attorney and the Federal Bureau of Investigation, Mr. Cruz stated "Mid Pac may control approximately 50% of the cigarette market on Guam, and based on the Department of Revenue & Taxation monthly reports, assuming other cigarette distributors are paying their portion of the cigarette tax, there is a potential underreporting of as much as 30% of the total cigarette taxes due in the range of $750,000 to $1,000,000 per month, possibly attributable to Mid Pac alone."
The MidPac case, which became public in 2018, revealed how easy it was for a well-established company to go years without paying taxes before officials ever notice. The revelation led to the Cigarette Stamp Tax Program created by then-Sen. Michael San Nicolas, and later to a law by Tina Muna Barnes requiring the Guam DRT to outsource the stamping system after the government lost its confidence in DRT to properly assess cigarette taxes. An avalanche of public scrutiny, including a letter from then-Attorney General Elizabeth Barrett Anderson to then-DRT director John Camacho that announced an investigation into the MidPac taxes.
If it has been that easy for cigarette distributors to evade or otherwise not pay cigarette taxes, would it not be just as easy for the same companies that also distribute alcohol to abscond from paying alcohol taxes?
In Ryan's case, he alleges facts that call into question DRT's tax enforcement role.
Ryan, the suit says, "personally examined actual receipts for alcohol sold by Permarch and purchased by certain Guam retail stores and came to the conclusion that the price being paid for the alcohol retail was in some cases lower than the tax per bottle that should have been paid."
Mr. Ryan provided the court with the receipts proving his point.
If citizen John Ryan was able to find these facts, why didn't the Guam Department of Revenue and Taxation?
And it isn't like Guam DRT wasn't aware. Part of the Ryan lawsuit informs the court that he "notified the Guam Department of Revenue and Taxation of the failure of defendant to pay taxes as set forth in this complaint on September 17, 2019, but to date has not been contacted and has no information regarding whether the Tax Department has even launched any investigation."
Kandit asked DRT director Dafne Shimizu for comment on the lawsuit and Ryan's allegations that her agency was notified of the failure to pay taxes. She responded, "The Office of the Attorney General is representing us in this matter."
Public Auditor Benjamin Cruz, who was a pioneer along with Mr. San Nicolas in the effort to collect on one of the sin taxes - on cigarettes - has announced the OPA's comprehensive review of both the cigarette and alcohol taxes. He also has included in this latest audit an inquiry into whether MidPac has been paying cigarette taxes as agreed, and as required by law.
