Income vs capital gains

Would you like $500-$1000 a month tax free for the rest of your life? Would you like to pass that same money to your children when you die? That is the return on the value of your home and land if you own it free and clear. To clarify, that money is money you do not have to pay to rent someone else’s house to live in. while that is not income or money your can pay a bill with, it is a form of compensation to you that home/land ownership provides. If you have fruit trees, pugua trees, or other food products for your own or family use, that is more tax free compensation from your home and land.

Every couple of months or so someone writes a letter to the editor expounding the benefits of repealing article 12 of the Constitution, i.e., land ownership in the CNMI. The culprit this time was our respected business leader Mr. Ricky Delgado in his letter to the editor (Tribune 9/25/08). While I really do not take issue with what he has to say, I do feel a few terms he used in his letter need clarification.

First, the sale of your own real estate is not income, it is a capital sign (or loss). A one time deal. Yes there are people in Guam driving their new Lexus or BMWs purchased from the capital gained realized from the sale of their real estate. Ten years from now there is a good possibility their 10-year-old cars will be rusted out from the salt air and they will have neither cars nor real estate. And there is most likely a capital gains tax due.

Second, money you receive from renting your available real estate (not your primary residence) is income. As are wages from employment. This is also referred to as the return on your investment, your real estate. So for 10 years you collect rents, you still own the property and you could have the new cars. This is one of the major reasons people want to own a real estate, to receive income from their property investment most of the time is better to be the landlord instead of the tenant. Of course there will be GRT and income due each year.

But most businesses lease their business facilities. There are a number of good reasons. First, usually there is not a facility to buy where the business wants to locate. Someone already owns all the good locations. Second, there is a significant additional risk if the business buys the business facility. Of note, the collapse of the U.S. real estate market in recent months. Third, money. Every dollar used to buy the facility cannot be used to purchase inventory or to provide the necessary operations capital until revenues are sufficient for continued operations. The lack of sufficient operating capital is the major cause of most business failures. If businesses are not coming to the CNMI it is because of the outrageous electricity rates, government blunderings such as the recent Rota Resort fiasco, forever changing labor laws, good old boy lawmakers and the list goes on. The repeal of article 12 changes none of these deficiencies.

Article 12 of the CNMI constitution is a “God Send” to those of Marianas decent. When the time comes to vote yea or nay on the repeal of article 14, ask yourself, do you want your children to be the landlords or the tenants in their homelands?