DOI supports CNMI on federal tax law

The U.S. Department of the Interior has expressed its willingness to help the CNMI be spared from a possible loss of revenue stemming from a recently passed federal tax law.

Office of Insular Affairs field representative Jeff Schorr said yesterday that the department has submitted CNMI documents to the Treasury’s international tax counsel for consideration.

“Our office has encouraged the CNMI and some other people to submit documents spelling out concerns so we could take this to Treasury,” he said.

In particular, he said that OIA Deputy Assistant Secretary David Cohen, in response to the Treasury Department’s invitation to provide input on tax issues, had passed Gov. Juan N. Babauta’s letter and enclosures to concerned authorities.

In early December, Babauta wrote Interior Secretary Gale Norton to protest the passage of the American Jobs Creation Act of 2004 or Public Law 108-357, which he said poses grave risk to the fiscal self-sufficiency of the Commonwealth.

The law, he said, changes the definition of “residency,” which would result in the CNMI losing revenues “in the millions.”

The law, he said, would convert the CNMI and other insular areas and their residents “into a source of revenue for the federal government, a relationship that could be characterized as colonial in nature.”

This would contradict the 1976 Covenant Agreement, which recognizes the essential link between self-government and fiscal resources and which commits all federal income taxes derived from the NMI and all other taxes levied on the inhabitants of NMI to the Commonwealth Treasury.

The governor said specific impact of the law cannot be quantified yet since the Internal Revenue Service is still drafting the necessary regulations.

But he said that the CNMI “has been denied access to these regulations until after their publication, thus limiting our ability to mitigate the effects of the Act though its regulatory interpretation.”

Schorr said yesterday that the DOI had responded to Babauta’s letter on Dec. 27 last year. “The department shares the governor’s concerns. We will continue to follow this issue and work with Treasury in our goal to help the fiscal self-sufficiency of the CNMI.”

Babauta has asked Norton’s office to sponsor a joint meeting of representatives of all five insular areas to identify problems associated with the law; establish a permanent committee composed of representatives if the U.S. departments of the Interior and Treasury and the insular areas to foster self-sufficiency through the coordination and implementation of federal tax policies; and to help amend the law.

Babauta said there is “a longer term need to deal comprehensively with the issues of insular area tax policy.”