Palacios supports tax incentives for MACS

Gov. Arnold I. Palacios says he supports tax incentives for Marianas Air Connections Services, operated by J&P Holdings, if it means inter-island air service for the CNMI.

In an interview with Palacios yesterday, he shared his opinion on MACS’ application for a qualifying certificate that is currently being reviewed by the Commonwealth Economic Development Authority.

The certificate essentially waives taxes for MACS and its mother company J&P Holdings to allow the airline to invest over $8 million in purchasing a fleet of planes that will be used for inter-island travel between CNMI islands and possibly Guam.

Palacios says he supports this, but he leaves it up to the experts.

“We should incentivize them but we should leave it up to the experts and the agency, CEDA, to make those determinations like what is a reasonable level of incentives for a company like MACs,” he said.

According to Saipan Tribune archives, should CEDA grant J&P Holdings (CNMI) LLC a qualifying certificate—essentially to waive certain local taxes for J&P Holdings, its subsidiaries, and its owners—Micronesia Air Connections Services could start providing regular inter-island air service as early as December.

A long standing CNMI investor, J&P Holdings, owned by John and Paula Stewart, has decided to branch out from air cargo, charter, scenic flight, and skydiving services by establishing a new airline in the CNMI focused on safe and reliable inter-island travel as well as direct air service from Saipan to Guam.

However, providing this kind of service is no easy feat as it would cost upwards of $8 million to cover the costs of acquiring planes alone (specifically nine 9-seater planes, with plans to expand into 19-seater planes).

According to J&P Holdings tax attorney Tina Azarvand, to ensure the airline’s viability and sustainability, the company has applied for a qualifying certificate with the CEDA for abatement and rebate of certain CNMI taxes.

Essentially, the certificate would waive certain taxes MACS would need to pay to the local government for a certain number of years.

Azavand explained that the qualifying certificate’s benefits extend beyond just helping the new airline (MACS) and its parent company (J&P Holdings). Her trickle-down economics explanation contends that the certificate helps MACS avoid financial losses in its early years, when startup costs are high, and profits are low. This financial support enables J&P Holdings to invest in new aircraft, pay landing fees, and take on the risks of providing air service.

The lawyer states that the initial tax benefits to the company would then flow down through increased tourism to revitalize the CNMI’s COVID-impacted economy “leading to higher hotel occupancies, increased car rentals, more restaurant dining, and greater overall visitor spending throughout the community, resulting in incidental tax revenue increases for the CNMI.”

Most importantly, with MACS in operation, the people of Tinian and Rota will have another option in terms of inter-island travel as MACS would bring in much needed competition which in turn would mean lower fares.

MACS intends to offer competitive fares for flights between Saipan and Tinian, Rota, and Guam. Final fares will depend on landing fees and the outcome of the qualifying certificate. MACS will also provide discounts to locals, seniors, and veterans.