392 private properties granted questionable tax exemptions
The government of Guam had missed out on $40 million in property tax revenue due to leakages and foregone revenues resulting from unexplained credits and questionable exemptions granted to private entities from 2012 to 2016.
According to the Office of Public Accountability, there were 1,176 properties granted exemptions as “government properties.” Of the total, 392 were private properties owned by individuals, businesses and financial institutions with total tax exemptions of $21 million and tax credits of $13,000.
“However, there was no explanation as to how these individuals, businesses, and financial institutions can be classified as government properties,” OPA said in an audit report on the Department of Revenue and Taxation. “In addition, we were unable to calculate the potential property tax of the exempted amounts without a breakdown of how much of the exemptions applied to land and building.”
In addition, OPA was unable to calculate the potential property tax of the exempted amounts without a breakdown of how much of the exemptions applied to land and building.
Auditors also spotted 816 properties in the 2016 tax roll with tax credits “without corresponding details as to the types of credit taken,” resulting in possible revenue leakage of $173,000. “Of the 816 properties, 714 properties are owned by individuals, businesses, and financial institutions, while the government owns the remaining 102,” OPA said.
All in all, OPA said, the property tax anomalies resulted in $18.8 million in revenue leakages and $21.3 million in foregone revenues, or an average of $8.5 million per year.
Revenue leakages, OPA explains, occur “due to complications and loopholes in the tax system or business processes, too much discretionary powers of officials or lack of infrastructure.”
Revenue leakages were the result of uncollected/delinquent property taxes, unassessed and or unbilled properties with un known taxpayers, unpaid escaped assessments, unassessed and/or unbilled Chamorro Land Trust Commission leased properties, untaxed condominium units, and questionable decline in taxable values of hotel properties.
From tax years 2014 to 2016, DRT identified an average of 6,684 properties with unknown taxpayers, tagged in the tax rolls as “John Doe,” which started to appear in the tax rolls after the mass re-appraisals in 2014. “The average appraised value of these properties amounted to $1 billion, which resulted in total tax due of $3.3 million in three years,” OPA said.
While some John Doe properties appeared to be non-taxable, OPA’s comparative analysis of DRT’s delinquency list showed that additional John Doe properties with taxes amounting to $726,000 did not appear to have been assessed.
OPA also listed the following anomalies:
* Of 573 properties with minimal land-appraised values ranging from $1 to $150, 13 belong to corporations.
* Of 96 buildings owned by individuals and businesses having minimal appraised values ranging from $26 to $9,984, at least, 32 have no or “$0” appraised values of the land where the building is constructed and four properties are owned by businesses.
OPA said the amount of revenue leakage could be more than what it has determined based on available data. OPA also uncovered several condominium units and townhomes that cannot be taxed due to the lack of PINs.
The exact total number of townhomes and condominium buildings constructed since 2012 could not be determined since neither the Department of Land Management nor the Department of Revenue and Taxation has a complete inventory of all real properties on Guam.
OPA said the Horizontal Property Regime Register of condominiums and townhouses provided by DLM, there were 169 listed owners/developers. “Of the 747 units within these 30 properties, 639 units were not found in the 2016 tax roll. Of the 639 units that could not be identified in the 2016 tax roll, RPT staff confirmed that 287 units were taxed and 189 units did not have assessed values from which to base revenue leakage calculations on,” OPA said.
As a result, OPA could only estimate revenue leakage for 163 units. “The total estimated property tax for the 163 units in 2016 alone amounted to $143,000. In 2016, DRT identified two additional properties with 125 units and a total tax due of $219,000 Altogether, we estimate revenue leakage of $862,000 for 288 units between tax years 2012 and 2016.”
“With 30 of 169 properties found in the 2016 tax roll, the remaining 139 properties were referred to DRT for verification. Of the 139 properties, 15 properties with 707 units are still pending DRT’s verification. If found to be untaxed, these will increase the revenue leakage amounts,” OPA said.
The $8.5 million in revenue opportunities lost every year offset the $7 million property tax increase that DRT has been collecting after the 2014 mass re-appraisal, OPA said.
From 2007 to 2016, the Guam Legislature has changed the assessed value rates from 70 percent to 90 percent to 100 percent and back to 90 percent in 2016.
Citing DRT data, OPA said the average assessed property value in Guam for 2016 was $196,281 after the mass revaluation in 2014, representing an increase of $59,031 or 43 percent from 2011.
Despite the increase, OPA noted that Guam average residential home value of $196,737 in 2016 remained among the lowest in the United States.
“Coupled with the lowest effective tax rate of 0.17 percent, Guam collects far less in real property taxes in comparison with the 50 states and the District of Columbia,” the audit report states. “According to the Tax Foundation, property taxes were the largest source of state and local tax collections in the United States, comprising 31.3 percent. However, Guam’s real property taxes accounted for only 3.4 percent of all tax revenues.”
Meanwhile, DRT has repeatedly pleaded “lack of manpower” as the reason for the tax leaks. But Speaker Benjamin Cruz won’t take any more excuses.
At the budget hearing on Wednesday, Cruz told tax officials that the Legislature provided enough to fill 40 vital positions which have been funded for more than 9 months. “You should have filled all those positions throughout the year to make sure you didn’t have a leakage problem,” Cruz said to Acting Director Marie M. Benito.
The department’s Fiscal Year 2019 Budget presented to the Committee on Appropriations today requested a total of $13.9 million.
While the budget reflected a 1.2 percent decrease from last year’s, Cruz noted that the department still had over 40 vacancies throughout its six divisions—despite Benito confirming that the Legislature provided sufficient funding in the Fiscal Year 2018 Budget to fill all positions.
With tax enforcement needed now more than ever, the lack of manpower in the fully-funded agency means that the only problem the department has are its priorities.
“Though public safety, education, and public health are a priority, they will have no money if you don’t get the support that you need to collect the money,” said Cruz. “We’re trying to help you collect because I recognize that if you don’t collect, I have nothing to appropriate from here so help me help you.”
“What I’m trying to do is to help you so that when this Committee decides that it’s going to fund these things, there is a rationale for it,” said Cruz. “The Committee is doing everything it can to show the People of Guam that we are committing to a ground-up approach because the current fiscal environment calls for it.”