The Leon Guerrero administration continues to allow a Calvo-owned cigarette distribution company to be licensed despite owing more than $15 million in taxes. This is according to a long-awaited audit issued late last week by Public Auditor Benjamin Cruz. The Office of Public Accountability report also makes it clear Guam law does not allow the Guam Department of Revenue and Taxation to renew the business licenses of companies with tax liability.
“One business was listed as an active licensed tobacco bonded warehouse wholesaler, despite having two active tax liens with a total BPT liability of $15,104,183 (from 2015 to present),” the audit of alcoholic beverage and tobacco tax collections states. Kandit previously reported and published a multi-million dollar tax lien and settlement between the DRT and a company owned by the Calvo family for taxes owed since 2015.
“Contrary to law, we found one wholesaler, ‘TP Taxpayer 2,’ was listed as an ‘active’ licensed tobacco bonded warehouse wholesaler, despite having two active tax liens, with a total BPT liability of $15,104,183 (from 2015 to present),” the audit states. “Although this taxpayer’s tobacco bonded warehouse license remains active, DRT’s records show that the taxpayer’s alcoholic beverage wholesale license has been cancelled, but DRT did not provide the cancellation date.”
Kandit asked director of revenue and taxation Dafne Shimizu why her agency continues to license this company, despite the law. Early Monday afternoon she said she recused herself from these matters, and that DRT deputy director Marie Lizama would be answering Kandit’s question. Ms. Lizama has not answered Kandit’s question as of the publication of this story.
“The Tobacco Control Act of 2006 states that the transportation or importation of tobacco products for delivery or use in Guam without payment of taxes is prohibited, and [the Guam Customs and Quarantine Agency (CQA)] is mandated to maintain a database of those in violation and to determine and administer violation charges,” the audit states. “Further discussion with CQA and DRT is required for us to determine how and why this taxpayer was allowed to continue to engage in the importation of tobacco products.”
Kandit asked governor’s director of communications: Has the governor or anyone at the governor’s office given any instruction or even suggestion to the Department of Revenue and Taxation to continue allowing the licensing of [a certain Calvo-owned company] as a tobacco-distribution company? The governor’s office has not responded to our question as of the publication of this story.
The recent audit – the latest of several – also reconfirms suspicions that the administration continues to fail to count the number of cigarettes imported to Guam for resale. The counting of the cigarettes is necessary because the sin tax the wholesaler pays to the government is based on the number of cigarettes imported. Since smokers pay the cost of the tax at the time of sale, if a wholesaler is selling cigarettes on Guam that GovGuam didn’t count and tax, then the wholesaler pockets the money that was supposed to cover the cost of taxes.
“Guam Customs and Quarantine Agency (CQA) data of imported and exported goods contains inconsistent data entries and does not always clearly segregate alcoholic beverages from tobacco products,” the audit states. A reliable source close to the auditors said the OPA’s investigation confirmed Guam DRT is not properly counting the cigarettes.
“Taxpayers are only required to reconcile their own records to determine how much is due for tobacco products withdrawn from a warehouse under bond,” the audit states. “Due to the current staffing shortage at the BPT Branch, the procedures required for assessing tobacco taxes at warehouses under bond have affected the Branch’s management of its other mandated procedures for delivering taxpayer services to over 1,200 businesses.”
On December 27, 2021, Kandit published the following story, which provides greater insight into the history of this problem, and the refusal of the past and current administration, and the most previous attorney general (Leevin Camacho) to rectify the matter:
The Office of Public Accountability earlier this year started a massive audit of cigarette and alcohol taxes following the emergence of evidence these so-called sin taxes were not being paid by some distributors. The public auditor, Benjamin Cruz, once alleged at least one cigarette distribution company may have evaded millions in cigarette taxes under the blind eye of Department of Revenue and Taxation regulators. He made those statements in a complaint to the Federal Bureau of Investigations months before he was elected public auditor; while he was speaker of the Guam Legislature.
That was four years ago. It was during that time then-Sen. Michael San Nicolas championed a law requiring the stamping of every pack of cigarettes that enters the island so DRT officials could properly count and therefore assess taxes on smokes before they ever leave the containers they are shipped into Guam on. The law was needed because, despite the maturity of the sin tax (it was levied decades ago by the legislature), DRT failed for years to assess and collect the taxes in full, according to an audit by Mr. Cruz’s predecessor, Doris Flores Brooks.
Since then, one cigarette distributor – WSTCO – sued GovGuam to follow yet another law (by Sen. Tina Muna Barnes) that required DRT to outsource the stamp process, DRT produced under mandatory disclosure statutes a Calvo-era settlement giving WSTCO competitor MidPac a sweetheart deal on millions owed in cigarette taxes, and the numbers continue to show one or more distributors are not paying taxes on a monthly basis.
According to the government of Guam’s monthly Combined Comparative Statement of Revenues throughout this year, GovGuam each month deposits a little more than $2 million in cigarette taxes into the Healthy Futures Fund, the lion’s share of which goes to Guam Memorial Hospital. Two of the four primary cigarette distributors have paid more than 90 percent of those taxes, according to tax receipts leaked to Kandit. On at least one occasion, those two companies paid 100 percent of the taxes that month.
Despite the obvious non-payment of taxes by the other tobacco distributor companies, Guam DRT still has failed to complete the procurement of cigarette tax stamps and outsource the administration of the stamp (assessment) process in order to collect taxes accurately and completely. The agency, under the guidance of the Office of the Attorney General of Guam, this year attempted to procure the tax stamps through a procurement process known as an invitation for bid, or IFB (specifically, IFB No. GSA-029-21). The effort failed. According to DRT deputy director Marie Lizama, the agency would not pursue the other procurement – a request for proposals, or RFP – for the administration of the stamping and assessment process, unless and until the stamps are purchased.
The government has been under pressure from the court of Superior Court of Guam Judge Elyze Iriarte, who this year has ordered the DRT to show cause why it should not have to follow the law and start the procurements. Asked recently in a KUAM interview about the failed IFB, the legislature’s oversight chairwoman for tax matters, Sen. Sabina Perez, said “So this procurement didn’t go through so I guess the next step to me logically is resubmit it to a wider audience because there are vendors out there that may not be here locally.”
IFB No. GSA-029-21 was widely advertised. As a matter of fact, the lone bidder was an off island company.
The respondent was Meyercord, “…the leading U.S. provider of excise tax solutions that help government and law enforcement reclaim lost revenue, close state budget gaps, and protect jobs and essential services,” according to its website.
Indeed, Meyercord is internationally renowned in this field of products and services. The company exists for the kind of situation Guam finds itself in.
After dragging its feet to issue the IFB in the first place, DRT decided to cancel the procurement following Meyercord’s submission, stating the company failed to submit a bid bond with its bid.
Kandit awaits a response from [then-attorney general Leevin Camacho’s office] as to why, considering Meyercord was the lone bidder – GovGuam did not simply ask the company to cut a check so the procurement could move forward.
A new procurement will be issued, Ms. Lizama told Kandit in October following a summer-time cancellation of IFB No. GSA-029-21. That new procurement has yet to be issued…
…Despite a lawsuit to compel DRT to follow the law;
…Despite the evasion of what is estimated to be millions of dollars in taxes; and
…Despite the continuous underfunding of Guam Memorial Hospital, the primary beneficiary of the cigarette taxes.
Why is the island’s political system dragging its feet on this matter? The primary users of the cigarettes – smokers – already paid the taxes, when they purchased their packs of cigarettes. For every pack of cigarettes sold on Guam, four dollars was the cost of the tax. Multi-million dollar tobacco companies are pocketing millions of dollars in taxes already paid by the consumer and not remitted to the government. Where are Guam’s senators and governor on this? Or, should we ask, who is benefitting from this silence?
03/01/2023 at 10:25 AM
This is worse than a regular Joe going to jail for stealing a can of spam. When you sell and do not remit is no different than the can of spam. What a bunch of no-good people.
Alan San Nicolas
03/02/2023 at 6:28 AM
Yanggen otru man debi esta man a’kotte. Gof annok I hayi ma guaiya yan hayi ma chatlíe’. 😢