‘CNMI expects $8.1M tax revenue’

The House of Representatives’ fiscal impact analysis shows that the CNMI could expect $8.1 million in tax revenue over a five-year period when a construction tax bill is enacted and implemented.

In total, there are 14 capital improvement projects and grant awards that are listed in the five-year plan with an expected $288,420,598 spending costs for these projects, said House fiscal analyst Thomas Rabago.

House Bill 23-74, House Draft 1, seeks to impose an additional 3% tax on the yearly gross revenue on construction activities in excess of $250,000.

By implementing the annual construction tax at 3%, it is projected to generate $761,287 in revenue during first year, Rabago said. The expected revenue in the second year is $1,625,523; third year, $4,221,308; fourth year, $1,192,892; and fifth year, $335,841, for total of $8,136,854, he added.

He based his analysis on the five-year projected plan provided by Finance Secretary Tracy B. Norita that depicts a listing of CIP and grant awards that also include the projected total of what those projects will cost to complete within the CNMI.

Rabago’s cost-benefit analysis was part of the House Ways and Means Committee report that recommended the passage of the legislation in the form of House draft 1.

The House adopted the committee report during a session on Monday. The bill, however, is on hold pending clarification in Section 102 that refers to non-refundable tax credit.

The committee, chaired by Rep. Ralph N. Yumul (Ind-Saipan) agreed to delete from the proposed legislation a three-year sunset clause.

Yumul is also the principal author of the legislation.

According to the committee, the bill states that in addition to the taxes imposed by the Commonwealth Code (tax on gross revenue), a yearly tax of 3% shall be imposed on the gross revenue directly attributed to or derived from construction activities in excess of $250,000. Any revenue less than this sum shall not be assessed an additional tax.

The committee said the yearly gross revenue tax shall exclude construction activity gross revenue generated by or derived from residential housing construction activities that is intended primarily for living purposes.

For clarity, “residential housing” shall mean construction of individual homes and not apartments or similar activities.

In addition, revenues unrelated to construction activities are not subject to this tax.

The committee said revenues from construction activities for construction projects prior to the effective date of this legislation are exempt from the tax, except for change orders that occur after the effective date of this bill.

During the fiscal year 2024 budget conference committee deliberations, the conferees agreed to push forward with tax bills because there were no other sources of revenue that could address the government’s revenue shortfall except for tax hikes.

Several tax bills that garnered the conferees support included the tobacco tax increase, sugar sweetened beverage tax, container tax, betel nut tax, and the construction tax.

The conferees anticipated to pass most, if not all, of these tax hikes to address the shortfall in Medicaid and Group Health and Life Insurance and to prevent further reducing the work hours of government employees.

Yumul said licensed construction contractors are currently paying a tax rate between 2.5% and 5% as set forth in the Commonwealth Code.

Rep. Ralph N. Yumul