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The Office of Public Accountability will examine a local distributor’s failure to pay millions of dollars in tobacco taxes, said Public Auditor Benjamin Cruz.
“We’ll be following up,” said Cruz, who first raised concerns about Mid Pacific Distributors tobacco tax debt last July, when he was speaker of the Guam Legislature.
Cruz now is public auditor after winning the August special election to fill the vacant public auditor’s seat.
4.9 million packs of cigarettes
The delinquent amount owed by MidPac is roughly equivalent to unpaid taxes on 4.9 million packs of cigarettes.
According to the tax lien and legislative testimony, the company, at the time the lien was filed, owed $14.7 million in tobacco sin taxes.
The tax, which was $3 per pack of cigarettes at the time, is due monthly. Lawmakers last year increased the sin tax to $4 a pack.
A June 2017 tax lien from the Department of Revenue and Taxation states the company failed to pay hundreds of thousands of dollars in taxes each month, for 24 straight months.
Tax delinquency started in 2014
The tax delinquency started in April 2014 and continued each month, through March of 2017. For several months during that span, the taxes owed exceeded half a million dollars, the lien states.
MidPac, in a July statement, said the unpaid taxes were inadvertent, and that it self-reported the matter to Rev and Tax.
Cruz in July wrote a letter to Attorney General Elizabeth Barrett-Anderson, stating he believed Rev and Tax was processing documents to absolve MidPac’s tax liability. Cruz cited possible conflicts, as MidPac is owned by incumbent Gov. Eddie Calvo’s relatives.
“I urge you to advise (Rev and Tax) that no settlement, waivers or absolution of the tax liability may be approved without your prior review and authorization,” Cruz wrote, stating the attorney general’s involvement in the matter may be the “last line of defense.”
He also asked the F.B.I. and the U.S. Attorney’s Office to investigate.
Lawmakers in July held an oversight hearing on the matter, after which former Sen. Mike San Nicolas sent a letter to the Bureau of Alcohol, Tobacco, Firearms, and Explosives, asking it to investigate possible tobacco smuggling by MidPac. He said it appeared untaxed tobacco products had been removed from the bonded warehouse system and sold.
Payment agreement with Rev and Tax
The company, in a written statement in July, said it discovered issues with its tobacco tax reconciliations and brought it to the attention of Rev and Tax, which then assessed the company for the additional taxes. MidPac entered into a payment agreement with Rev and Tax, it stated, which involved a substantial initial payment and monthly installments.
“The inadvertent underpayment of excise taxes was unfortunate but did not involve any diversion of product from our bonded warehouse facility which is under the oversight of DRT. When Mid Pac discovered the problem we immediately brought the matter to DRT’s attention and agreed to a payment plan pursuant to standard DRT procedures. Mid Pac pays millions of dollars in much needed tax revenues to the government in addition to employing hundreds of employees,” company President John T. Calvo was quoted as saying.
As of Jan. 3, there was no public record of the tax lien being released by Rev and Tax.
Part of lien released
The lien against MidPac includes at least $29.4 million of the company’s real estate holdings, according to tax documents filed in the U.S. District Court of Guam.
The fair market value of the real estate impacted by the tax lien is at least twice the company’s $14.7 million tax debt, documents state.
Because the company’s real estate holdings are more than enough to cover the delinquent tobacco taxes, Rev and Tax Director John Camacho in late September agreed to release one of MidPac’s properties from the lien — a building on Route 16, across from the Micronesia Mall.
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Camacho on Sept. 27 signed a “certificate of discharge of property,” releasing the property from the tax lien.
The property, which was a MidPac liquor distribution site, currently is being used as retail space, with several different businesses occupying the warehouse.
GovGuam has not yet implemented a 2017 law by San Nicolas that requires the placement of a government tax stamp on each pack of cigarettes to prove that taxes were paid.
It requires wholesalers to obtain tax stamps from Rev and Tax and to pay for those stamps by the 20th day of the following month.
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