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Report: Cigarette companies not paying taxes AGAIN

By Johnnie Rosario

Here's a family fun math problem for senators, except the mathematically challenged (rhymes with Felo Faitague):

If there are four companies on Guam that distribute cigarettes, and all four companies have to pay cigarette taxes, but only one company paid 100 percent of the cigarette taxes in one month, how many companies sold cigarettes?

The answer: All four of them; three just failed to pay taxes that month.

It's been four years since the Department of Revenue and Taxation under the Calvo administration found out that MidPac - a Calvo company - didn't pay cigarette taxes for three years, even though smokers paid the tax to MidPac. Four years ago, and in secret, DRT negotiated a settlement with MidPac and allowed the Calvo company to pay only a fraction of the taxes it owed: $14.7 million. Unconfirmed source reports place the original figure closer to $90 million.

Four years ago, then-Gov. Eddie Calvo went to the legislature demanding the senators raise the business privilege tax so that he could properly fund Guam Memorial Hospital. The irony is that the cigarette taxes his family's company owed was supposed to fund GMH.

Three years ago, all of this became public.

Last week, Lawrence Terlaje, a manager then and now with DRT, denied Kandit's request for documents that will show whether MidPac has been paying down its discounted tax debt according to the settlement agreement and tax lien.

Today - four years after the discovery and seven years from the month MidPac absconded on its tax liability - Kandit has learned from court documents that as late as March 2021, MidPac and other cigarette wholesalers were not current in tax payments, according to court-filed documents.

In a declaration by WSTCO attorney Joseph Razzano in the company's case against the government of Guam to compel GovGuam to implement the Cigarette Stamp Tax Program, the attorney provided a summary of cigarette taxes paid by WSTCO compared to the total cigarette taxes collected by GovGuam for the first three months of 2021.

WSTCO and a sister distribution company are two of the island's handful of cigarette distributors.

In January 2021, according to this summary, GovGuam collected $2,014,303 in cigarette taxes. Of that amount, WSTCO and its sister company paid nearly 100 percent of the taxes: $1,994,040. MidPac, which distributes the lion's share of cigarettes on Guam, should have paid the lion's share of taxes. According to this summary in these court-filed documents, MidPac paid hardly any cigarette taxes that month, if any at all.

In February 2021, the two WSTCO companies paid half of the $3,161,680 in cigarette taxes GovGuam collected that month. Again, if all cigarette distributors were paying their taxes, there is no way WSTCO and its sister company would be liable for half of the taxes collected.

But it's the final month - March 2021 - of the document that is most concerning. That month, WSTCO paid $2,100,000 in cigarette taxes. GovGuam journalized its collection that month at $1,803,040, indicating that a fraction of the cigarette wholesalers on Guam paid 110 percent of the taxes due.

WSTCO "is operating in a marketplace that is patently unfair," Mr. Razzano told the court on June 9. "The Legislature specifically enacted the tobacco stamp tax laws to create a fair environment for wholesalers."

Razzano informs the court that even the public auditor wrote a report "detailing that tobacco wholesalers are likely not paying all taxes due to the government of Guam for tobacco. This reality is easily confirmed by a review of the [government's] own records. In January and March 2021, [WSTCO] and its related tobacco wholesale entities paid substantially all of the tobacco tax collected and reported by Department of Revenue and Taxation for that same period, despite not being the only tobacco wholesaler in the marketplace."

How, after so much public scrutiny following the public discovery of the MidPac tax lien three years ago, has the DRT allowed for the return of the days, when cigarette wholesalers are again not paying their taxes? And why aren't the internal accountants and auditors within these companies of this heavily-regulated industry, on top of this mess?

It must occur to the accountants and MidPac's auditors that taxes are overdue. We are talking about hundreds of thousands to millions of dollars each month... amounts quite noticeable on the ledger.

What of the certifications these financial officers must make in the compliance with local and federal laws governing the tobacco industry? It isn't just the government of Guam on the hook here for enforcement of the tax laws. People within the industry have fiduciary and legal responsibilities.

As to the government and the remedies available to it, when cigarette wholesalers fail to pay taxes on time, there is one other tool worth our while to look into. Is DRT renewing the annual business licenses for cigarette wholesalers that owe taxes?

Kandit is closely monitoring this case.

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