DRT targeting taxes from military contracts

DRT targeting taxes from military contracts

Monday, 15 February 2010 05:15
by Therese Hart | Variety News Staff

THE Department of Revenue and Taxation has laws and regulations in place for companies doing business on Guam and those contracted on U.S. military installations and it is the department’s responsibility to make sure that all these companies are paying their taxes on island, tax director Art Ilagan said.

Contractors who do business on Guam are required to register with the Guam Contractor’s License Board and they must obtain clearances from DRT which would include the Collections Branch to make sure they do not have any unpaid taxes, said Ilagan in a letter to Speaker Judi Won Pat.

Ilagan said companies will not get clearance until all taxes are paid in full or they have entered into a payment installment agreement.

In a Jan. 20 memorandum, President Barack Obama directed the Internal Revenue Service to conduct a review of certifications of non-delinquency in taxes that companies bidding for federal contracts are required to submit pursuant to a 2008 amendment to the Federal Acquisition Regulation.

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The memo noted that too often federal contracting officials do not have the most basic information they need to make informed judgments about whether a company trying to win a federal contract is delinquent in paying its taxes.

Obama indicated that the federal government pays more than half a trillion dollars a year to contractors, yet reports by the Government Accountability Office state that federal contracts are awarded to tens of thousands of companies with serious tax delinquencies.

The total amount in unpaid taxes owed by these contracting companies is estimated to be more than $5 billion.

Ilagan said the federal government will go after off-island prime contractors. However, DRT foresees a problem of tracking subcontractors who do business on base.

Subcontracts

“Once they get the federal contract, they then subcontract out here on Guam to local contractors. We just have to control it here when the subcontractors get the contracts from the prime contractors. We have to track the subcontractors and even that is kinda hard to track. How do we know these subcontractors aren’t doing business on base?” said Ilagan.

Contractors who transact business solely on U.S. military installations on Guam are required to obtain a service license. They also are also require to obtain the necessary clearances with DRT which would include clearance from Collections Branch.

Ilagan said the Collections Branch is hard at work investigating these off-island companies with a service license to do business on military installations to make sure they are in compliance with the business privilege tax laws on Guam.

Daunting task

“It is a daunting task considering that for fiscal years 2008 and 2009, there were 649 and 644 contractors, respectively, listed on the federal government spending website for Guam alone,” Ilagan stated in a letter to Won Pat.

This list is a combination of local and off-island companies who either have a business license, contractor’s license or service license, Ilagan said.

Vice speaker B.J. Cruz is also concerned about Guam not being able to capture all local taxes owed by companies who will do business on Guam because of the military buildup.

Cruz has asked Congresswoman Madeleine Z. Bordallo to include language in the 2012 National Defense Authorization Act which would require that each construction contract to designate Guam as the originating site and that all associated income be designated possession source income without any special exemption.

Cruz also asked that the Department of Defense be specifically required to cooperate with tax officials on Guam.

Bordallo responded that she would consider Cruz’s request.