$2M rebate checks out

The Department of Finance has released 2004 rebate checks totaling some $2 million since end of July this year.

Finance Secretary Fermin Atalig said yesterday that the amount covers both urgent and regular cases.

Urgent cases include those checks issued to taxpayers facing emergency situations such as hospitalization or death in the family. To be considered urgent, taxpayers need to provide proof of emergencies.

The department earlier said that the first batch of emergency rebate checks was expected to be released on July 15 while regular processing of 2004 rebates and refunds was to begin on Aug. 15.

The Tax and Revenue Division had said that the release of checks will be based “on earliest filing date of the tax return.” The office said that it finished issuing the 2003 rebates/refunds checks in early July this year.

The CNMI government issues some $20 million in rebate and refunds every year.

Reason for delay

The Finance Department said in a statement that the delay in the release of rebates is not due to “missing” funds but to “cash shortfall,” which stemmed from the passage of Public Law 9-22, which eliminated the rebate trust fund and deposit requirement.

A new law, Public Law 9-57, has been enacted since then, reinstating the Rebate Trust Fund and deposit requirement but Finance said that this essentially means that one year of deposits were not made.

Until Dec. 31, 1994, the law (4 CMC Division 1) required that 95 percent of the Chapter 7 tax collections be deposited into the Rebate Trust Fund.

When P.L. 9-22 was enacted, it repealed and reenacted 4 CMC Division I in its entirety. The law took effect Jan. 1, 1995, changing rebate levels from 95 percent to the current tiered levels of 50 percent, 70 percent, and 90 percent, “but it did not include the requirement for a rebate trust fund or deposits to this fund.”

In the meantime, the department continued to keep the Rebate Trust Fund as an accounting fund but discontinued actual separate cash deposits into it during fiscal year 1995.

Tax year 1994 rebates were paid in FY 1995 from the existing Rebate Trust cash.

“Since no new deposits were required by law, this left almost no cash in the Rebate Trust,” Finance said.

P.L. 9-57, which took effect on Oct. 6, 1995, reinstated the trust fund and cash deposit of 95 percent. The department then resumed cash deposits to the Rebate Trust account. This resulted in building up enough cash to pay tax year 1995 rebates in FY 1996.

In November 1998, the government enacted P.L. 11-49, reducing the percentage of income taxes paid to the Rebate Trust from 95 percent to 50 percent through December 2000 and 75 percent beginning January 2001.

The payment of prior year rebates with the following year’s cash collections has continued to the present, the department said.

Finance said that this setup worked relatively well during the time income tax revenues were high but as income tax revenues fell in 1997 and the percentage of collections transferred to the rebate were reduced, subsequent years’ collections have been less than the previous year’s rebate liability, resulting in delays in payment of rebates until sufficient cash is collected.

Likewise, contributing to the cash shortfall is the taxpayers’ preference to reduce their income tax withholding to reduce their rebate payable at the end of the year.

This limits the CNMI’s future rebate obligation but reduces the cash that is currently being collected to fund the payment of prior years’ rebates, said Finance.