Weeks of business inspections on Saipan found “numerous” violations that include the perennial problem of lack of sales records but the Department of Finance was unable to issue any single citation on site because an 11-year-old law lacks enforcement teeth, among other things, Finance Secretary Larrisa Larson confirmed with Saipan Tribune.
A lack of sales records among many businesses translates to millions in uncollected taxes. This means revenue loss for the CNMI government that needs to provide public services such as for health, welfare, safety, and education.
In some cases, the uncovered practices “could trigger an audit,” Larson added.
The problem lies with the way the Sales Receipts Act of 2002 is written.
Finance and the Legislature are now trying to amend this law to provide the Finance secretary the authority to issue citations to any person found violating the law.
The bill also amends the law on business licenses.
Larson said House Bill 18-132, which was introduced on Thursday, amends the law to clarify the authorization for the Finance secretary or his/her designee to issue cease-and-desist orders that are effective even before an administrative hearing is conducted and until the violation is cured.
Those violations include lack of proper business sales records and lack of business license.
“So what happened was, even though the Finance team found numerous violations, they couldn’t issue citations to any of the businesses they checked because Finance does not have the authority to issue citations,” Larson said in an interview.
Finance, therefore, considered the initial sweep only as an “educational outreach” to inform businesses of what they need to do to comply with the Sales Receipts Act of 2002.
These include proper method of receipting, wherein businesses should have a record of every sales transaction subject to taxation.
“We will have a second round of inspections once the law is amended so that Finance can issue citations when they found violations,” Larson added.
For several weeks, a Department of Finance team visited mostly small businesses that are normally unchecked for a lot of compliance issues such as whether they have a valid business license or are current in their tax payments, compared to medium and large businesses that have always been under the microscope.
To date, many businesses still do not issue receipts or do not have proper method of recording sales and other taxable transactions, the Finance secretary said.
“Enforcement is one of key ways to generate revenue, comply with laws such as paying taxes and fees,” Larson said.
The initial Finance sweeps covered only Saipan.
Larson said that Finance will also conduct inspections of businesses on Tinian and Rota in the near future.
“I again encourage businesses to resolve outstanding tax and other related issues they may have prior to enforcement people coming in and issuing citations to them. We found numerous violations and made notes of where we’d go back. Once this bill becomes law, we would be able to issue citations to businesses,” she added.
Finance and the Department of Public Safety are now developing a memorandum of agreement “so if DPS sees violations related to the Sales Receipts Act, they could refer them to us,” Larson said.
DPS Commissioner James Deleon Guerrero, meanwhile, told the House of Representatives on Thursday that DPS supports any measure that strengthens enforcement of this and other laws.
Deleon Guerrero was referring to Rep. Christopher Leon Guerrero’s (Cov-Saipan) House Bill 18-132, which increases penalties on businesses that fail to issue receipts of sales or operate without a license.
Leon Guerrero, chairman of the House Judiciary and Government Operations Committee, introduced HB 18-133 on Thursday, which the speaker referred to the Committee on Commerce for review.
The current fines for not issuing receipts range from zero to $1,000.
The new fines are $250 for the first offense, $750 for the second offense, and $1,500 for the third offense. The third offense will trigger an automatic revocation of the business license for six months.
The criminal aspect wherein violators may face up to one year jail time was removed and replaced with a higher civil fine under the bill.
The DPS commissioner also expressed support for Leon Guerrero’s House Bill 18-133, which amends the law relating to obstruction of justice to add a new provision relating to making false statements to public servants.
“That would save us [DPS] a lot of investigative time,” Deleon Guerrero told lawmakers.
‘Plugging a loophole’
In related news, the House passed on Thursday Rep. Tony Sablan’s (Ind-Saipan) House Bill 18-57, House Draft 1, requiring a business license for each business location regardless of the line of business.
The bill passed by a vote of 18-0 at 3:38pm on Thursday.
It now goes to the Senate for action.
The Committee on Commerce, chaired by Rep. Edmund Villagomez (Cov-Saipan), said the CNMI continues to lose additional revenues by allowing businesses to buy one business license, yet have multiple branches in the CNMI.
It said this “loophole” has been in the books for many years “but has gone unnoticed, most especially during the booming of the CNMI’s economy.”
“…Many businesses in the CNMI are opening shops in different locations within the Commonwealth, for the fact that it will only cost them minimally with the bonus of maximizing profits in all the additional locations,” the committee said in its recommendations to pass HB 18-57 in the form of House Draft 1.
Once the bill is signed into law, the CNMI is expected to “realize immediate increase in government collections.”