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Judge orders Shimizu to implement San Nicolas's Cigarette Stamp Tax program

By Troy Torres

A program created by then-Sen. Michael San Nicolas to hold cigarette distributors on Guam accountable for the cigarettes sold on Guam must now be implemented. If it is not implemented by director of revenue and taxation Dafne Shimizu by May 19, she must appear before Judge Dana Gutierrez to show cause as to why.

These facts are according to an alternate writ of mandamus and order directing issuance signed by Judge Gutierrez and filed Monday in the Superior Court of Guam.

Judge Gutierrez's order tells Ms. Shimizu to initiate the procurement process to select a private company to administer the island's cigarette stamp tax laws. That procurement process was mandated by Public Law 35-129, signed by Gov. Lou Leon Guerrero on December 29, 2020. That law required the Department of Revenue and Taxation to issue the procurement for these services within 45 days of the governor's signature.

The law, the governor wrote in her message to senators informing them of her approval, "builds in flexibility to allow DRT to model a program that would ensure that government continues to carry out its duty to regulate and tax while also relying on outside technical expertise and assistance. It safeguards the potential revenues by making a reasonable amount of money available for the administration of the Cigarette Tax Stamp Law and it closes loopholes in the bonded warehouse program that have, unfortunately, resulted in lost revenue to the government of Guam."

P.L. 35-129 is the law supplementing the actual Cigarette Stamp Tax mandate, which was created by Public Law 34-55, authored by then-Sen. San Nicolas as rumors floated of a massive tax debt owed by a Calvo-owned cigarette distributorship. Eddie Calvo was the governor at the time and did not sign the bill into law; it lapsed without his signature on October 14, 2017. Within weeks of the bill becoming law, information was leaked and the director of revenue and taxation at the time was forced to reveal that, indeed, MidPac - owned by the Calvos - was in the midst of settling a tax debt in the tens of millions.

News of the tax debt came in the middle of Calvo's efforts to raise the island's gross receipts tax - a tax that affects the poor the most - by 25 percent, from a four point levy to a five point levy. His reason for wanting to increase taxes was to supplant tens of millions in tax revenue set to disappear from the reduction of the corporate income tax through the Trump tax cuts. While DRT has never acknowledged MidPac's original tax debt, sources have speculated it to be higher than the amount GovGuam lost through the nationwide cut in the corporate tax rate.

P.L. 34-55 was part of Mr. San Nicolas's local crusade against corruption while he was a senator. He left to become Guam's congressman 14 months later. During that time, then-Gov. Calvo refused to implement the program. Then, Ms. Leon Guerrero came to office.

The new administration, when pressed, claimed to fiscally unsound to implement the program. On June 11, 2020, then-Speaker Tina Muna Barnes introduced her solution to the problem Ms. Leon Guerrero had with the administration of the stamp tax - legislation allowing DRT to outsource the administration of the program, and funding to back up the procurement.

At the time the law passed, the island was in the throes of a Dengue epidemic, which quickly turned into a coronavirus pandemic. Western Sales Trading Company, or WSTCO, one of the island's cigarette distributors, sued Ms. Shimizu to enforce Ms. Muna Barnes's law.

It should be noted that it is widely speculated agents of WSTCO were the whistleblowers on the Calvo-owned tax liability and settlement.


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