Twin bills seek to raise sin tax, property improvement tax
As Guam consumers and taxpayers brace for the 2 percent sales tax and business privilege tax increase under newly signed laws, a pair of new tax hike bills have been filed in the legislature.
Speaker Benjamin J.F. Cruz has proposed twin bills targeting tax increases on booze and tobacco products as well property improvement. The two tax increase proposals are projected to net a total of $27 million, which would be earmarked for the Guam Memorial Hospital and the Guam Department of Education.
Gov. Eddie B. Calvo on Friday signed into law two tax bills— one would raise Guam’s business privilege tax from 4 percent to 5 percent, and another implements a 2 percent sales tax. Both bills aim at closing the $67 million revenue shortfall caused by federal tax cuts, as well as providing subsidy to the government hospital.
“Now that we have stabilized the patient, government must look to increase revenues in ways that are tolerable to an economy,” Cruz said.
Cruz’s Bill 260-34 proposes to increase the excise tax on certain alcoholic beverages from 7 to 10 cents per each 12 fluid ounces on all malted fermented beverages and $18 to $25 per gallon on all distilled beverages.
“Alcohol is a discretionary expense and drinkers will pay what it costs to drink,” Cruz said in introducing Bill 260-34.
The bill would increase tobacco tax from $15 to $20 for every 100 cigarettes; 44 to 58 cents per each standard cigar, and $40 to $53 per pound of all other tobacco products.
“If we’re going to help our hospital, we must use every tool at our disposal to keep this dangerous substance from robbing yet another person of a healthy life,” Cruz said in introducing Bill 260-34.
The proposed sin tax increase is projected to generate $4 million in new revenue that would bridge a gap in GMH’s funding until the new sales tax takes effect in October.
The bill also contains a provision to repeal the referendum requirement for the proposed tax increase.
The accompanying measure, Bill 261-34 would raise the tax on improvements of all real property on Guam.
The bill, if enacted, is estimated to generate $23 million— $13 million of the projected collection would be directed to the GDOE to address its funding shortfall and facility maintenance issues.
“We all want public school facilities to be safe and well-maintained but, while every dollar we already pay in property taxes goes to support education, those resources aren’t keeping up with a growing need,” Cruz said.
Cruz said the bill seeks to address the public school system’s ongoing maintenance issues — compounded by over $12 million in cuts the department recently made in light of the government’s current fiscal shortfall.
Citing the U.S. Army Corps of Engineers’ 2013 estimate, Cruz said GDOE’s deferred maintenance needs totaled approximately $90 million — a figure that Superintendent Jon Fernandez says GDOE has “worked to reduce” but nonetheless remains an issue.
“Yes, the passage of Bill 248 will avert a government shutdown and give our kids additional resources in October, but that won’t be enough to make-up for decades of neglected maintenance,” Cruz said.
Guam’s current real property tax is levied on all land property at the rate of 7/72 percent of the value of land and 7/18 percent of the value of the improvements on land. This means that Guam currently has the lowest effective property tax rate in the nation at 0.24 percent—with New Jersey at 2.38 percent and Hawaii, the lowest of all 50 states, at 0.28 percent.
Bill 261-34 would double the current property tax on improvements from 7/18 percent to 7/9 percent—generating an additional $23 million for fiscal 2019 with an increase in taxes for property owners reflected in February of next year.
Under Guam law, all proceeds would be deposited into the Territorial Educational Facilities Fund. Cruz’s measure, however, would mandate that 25 percent or $13 million be dedicated to a Building Maintenance Fund, for the sole purpose of maintaining GDOE school facilities.
“For years, we have recognized that Guam’s real property tax rate is among the lowest in the nation, I’m asking that we adjust that rate, and in so doing, end the cycle of fiscal neglect that we all agree plagues our classroom facilities,” Cruz said.