Inos signs $10 million CUC loan bill into law

Acting governor Eloy S. Inos signed into law on Saturday a bill authorizing a $10 million loan by the Commonwealth Utilities Corp. to improve its utility services such as those related to power generation, two days after vetoing a foreign corporation tax bill and approving the local appropriation of $35,000 from Tinian developer tax payments.

The CUC loan bill, which almost did not pass the House if not for a one-vote change on Thursday, authorizes CUC to borrow $10 million from the Rhode Island-based Independence Bank so that the utilities agency could improve its equipment and facilities to meet the requirements of stipulated orders.

Money from the loan would also be used for CUC projects on Rota and Tinian, a provision that the Senate inserted into the final version of the bill.

Inos signed House Bill 17-205, House Substitute 1, House Draft 1, Senate Substitute 1 into Public Law 17-62.

The bill was authored by Rep. Stanley Torres (Ind-Saipan), who eventually voted against the final version because of changes he did not agree to.

Under the new law, the CUC executive director is authorized to execute the $10 million loan in the absence of an organized board of directors.

House members debated whether it was public indebtedness, whether CUC would pass on additional expenses to its customers if and when it defaults on its loans, and whether the U.S. Department of Agriculture is really going to guarantee the loan.

The deadline to complete the loan was Nov. 30 or Dec. 1 Saipan time, the day the House narrowly passed the bill. But at the time, CUC was communicating with the bank about the latest development on the bill so that it could be given extra time to complete the submission of the loan, which also needed further review by the Public Utilities Commission.

Vetoed bill

The acting governor vetoed on Thursday a conference committee bill that seeks to provide for a tax rate for foreign corporations earning income from outside of the CNMI, saying that such changes to the tax structure violate the terms of the Covenant to establish a CNMI in political union with the United States.

Inos, in vetoing House Bill 17-163, Senate Draft 2, Conference Committee Substitute 1, said this bill is structured to provide tax incentives for companies to establish CNMI corporations and then use these corporations to obtain favorable tax treatment on foreign-sourced income.

Under the bill, originally introduced by Rep. Ray Basa (Cov-Saipan), a special tax rate of 10 percent would be established in the Northern Marianas territorial income tax (NMTIT) for “net foreign income.”

Additionally, a NMTIT income rate of 0.5 percent would be imposed on capital gains, interest, royalties, copyrights, patents and other intangibles.

Finally, the bill provides that to the extent any foreign income is subject to NMTIT a rebate of 100 percent shall be provided.

“These proposed changes to the NMTIT tax structure are in violation of Covenant restrictions to limit rebates to Commonwealth sources income and case law which prohibits changes by insular areas that have adopted the United States tax code,” Inos said in his message to House Speaker Eli Cabrera (R-Saipan) and Senate President Paul Manglona (Ind-Rota).

Article VI of the Covenant establishes the interrelationship between the U.S. and the CNMI in regards to tax authority.

This section states that U.S. income tax laws will come into force in the Northern Marianas as a local territorial income tax.

Sourcing of income is an important element of imposing income tax liability and is generally addressed in Subchapter N of the U.S. Tax Code and associated federal regulations.

Section 601 of the Covenant specifically limits the authority of the CNMI to rebate to taxes on income derived from sources within the CNMI, Inos said.

New Tinian law

The acting governor also approved on Thursday a local measure appropriating $35,000 from the developer infrastructure tax collected on Tinian to go towards road paving on Tinian.

House Local Bill 17-46, Draft 1, introduced by Rep. Trenton Conner (R-Tinian), is now Tinian Local Law 17-9.

“I appreciate the signing of the bill and thank the governor for his understanding on the needs of the municipality,” Conner told Saipan Tribune yesterday.

The new local law appropriates the amount to the Office of the Mayor of Tinian for use by the Department of Public Works-Tinian for unpaved roads at Marpo, Marpo Heights II, and Carolinas.