Tenorio follows up on federal tax law issues

Washington Rep. Pete A. Tenorio has asked the Department of the Interior to bring up during an upcoming plenary session of the Interagency Group on Insular Areas the issue of a possible loss of revenues for the CNMI and other territories arising from a newly enacted federal tax law.

Tenorio, in a Feb. 24 letter to Insular Affairs Deputy Assistant Secretary David Cohen, said the enactment of the American Jobs Creation Act of 2004 poses significant risks to the tax structure and fiscal integrity of the CNMI.

In particular, Section 908 of the Act changes the requirements in determining residency and source of income in such a way that persons currently paying taxes in the CNMI would have a tax liability with the federal government.

The section, he said, puts serious restrictions on who may file income tax returns in the CNMI and the source of income that may be taxed.

“These two restrictions will directly reduce the tax base of the Commonwealth… We’d like very much to request that the IGIA include on its agenda a review of the impact Section 908 will have on the insular areas,” he said.

Earlier, Gov. Juan N. Babauta wrote Interior Secretary Gale Norton to protest the new law, which, he said, poses grave risk to the fiscal self-sufficiency of the Commonwealth.

The law would convert the CNMI and other insular areas and their residents “into a source of revenue for the federal government, a relationship that could be characterized as colonial in nature, he said.

“Although the full extent of this shift in tax liability is difficult to estimate, given the limited fiscal resources available to the Commonwealth, any diminution in these resources must be protested,” said Babauta.

He further said the legislation would violate the Covenant agreement, which, he said, recognizes the essential link between self-government and fiscal resources.

Babauta, in his letter, lamented that the CNMI was never given a chance to comment on the changes.

Such lack of transparency, he said, has raised concerns about the long-term intentions of the federal government with respect to tax policy and economic development in the insular areas.

Tenorio said Section 908 of the bill was changed at the Senate. The House version, he said, did not contain the “objectionable” provision.

Babauta has asked the DOI to sponsor a joint meeting of representatives of all five insular areas to identify problems associated with the law; establish a permanent committee composed of representatives of the U.S. departments of Interior and Treasury and the insular areas to foster self-sufficiency through the coordination and implementation of federal tax policies; and amendment of the law and in the interim participation by the DOI and the affected insular of implementing regulations by the IRS.

Meantime, Tenorio said that IGIA should also tackle health care concerns in the CNMI and other territories, particularly the shortage of workers and lack of funding.

Other issues of profound significance to the CNMI, he said, are water and wastewater improvement projects.

The IGIA meeting will be held next week.