GovGuam continues allowing big tobacco companies to rob smokers and keep tax money

(Editor’s note: This is one of a two-part series on the collection of sin taxes on Guam. This first part is about the tobacco tax. The second part deals with the alcohol tax.)

It’s official. The government of Guam can now change a lightbulb faster than it can collect taxes on tobacco and alcohol. To be clear, it’s lightbulb game has not improved one iota; GovGuam simply has absconded on its responsibility to collect sin taxes.

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 the OAG 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?

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