San Nicolas: No Section 30 impact in proposed tax code delinking

The proposed delinking of local tax codes from federal tax codes would not have an impact on Section 30 funds and Guam’s tax exempt bonds, according to Sen. Michael F.Q. San Nicolas, citing responses from a federal government research body.  

The chairman of the committee on finance and taxation convened a meeting for the Guam Tax Commission yesterday morning to review the responses to questions sent to federal authorities. Earlier this year, the commission met to discuss the concerns related to the potential legal implications of Guam’s delinking from the Internal Revenue Code.

Current law requires Guam to use the IRC, a federal statutory tax law, as its territorial income tax law.

'Trying to pursue that process'

San Nicolas said that since the late '80s, the federal government has granted Guam the authority to be able to delink from the federal tax code.

“For more than 20 years since then, the government has been trying to pursue that process,” he said.

He added that the Guam Tax Commission has been dormant for several years. After commission activities were revived last year, efforts to pursue the delinking process continued. San Nicolas said he had to recess the commission until they received responses from the federal government.

“They responded to the questions that we sent to them at the end of June. We had the commission meeting to update their members officially and have an informal discussion on where we are going to go next,” he said.

According to San Nicolas, the office of Guam Delegate Madeleine Bordallo facilitated the process of submitting and generating responses to the legal questions from the Congressional Research Service.

CRS provided responses to questions such as: Would a delinked tax code affect income tax reimbursement to the government of Guam under Section 30 of the Organic Act? Would delinking affect the tax treatment of GovGuam’s tax-exempt bonds? Would delinking affect the eligibility of the government of Guam for federal grants?

'Not conditioned in any way'

According to the CRS, “the legal authority provided under Section 30 for these payments is not conditioned in any way to Guam having a mirror code. Rather, the payments are linked to Guam’s adopting a fiscal year.”

Section 30 funds refer to federal income taxes derived from active members of the armed forces and pensions paid to retired civilian and military employees of the United States who reside on Guam. These funds are appropriated to support the operations, activities and programs of the local government.

For the tax-exempt bonds, CRS said that “under U.S. law, interest earned on Guam’s bonds is exempt from federal income taxes.” Moreover, they said “this tax treatment is not dependent on Guam’s use of a mirror code. Thus, under current law, the federal tax treatment of Guam’s bonds would not be affected if Guam were to delink from the IRC.”  

On whether federal grants would be jeopardized should the delinking take effect, San Nicolas said, “Generally no, but if those grants were specifically tied to the code, then those will probably be an issue. But it has to be evaluated on a grant-by-grant basis.”