‘DOI to help protect islands on tax law’

The U.S. Department of the Interior is working closely with the U.S. Treasury to ensure that insular areas like the CNMI are not adversely affected by a newly passed federal tax law, according to deputy secretary-designee P. Lynn Scarlett.

Scarlett, during her recent visit to Saipan, acknowledged that the newly enacted U.S. Job Creation Act has changed the definitions of certain terms such as residency, which could potentially impact the insular areas.

“We understand the concerns not only of the CNMI but also other areas like [the U.S.] Virgin Islands, which has benefited from previous residency definitions,” said Scarlett.

She said the DOI is actively involved in the drafting of regulations.

“We are closely working with the Treasury Department to ensure that as regulations are developed, they unfold in a way that doesn’t adversely affect the economic opportunities [on] the islands. That process is underway. Draft regulations are being worked on and we continue to have discussions,” she said.

Scarlett was on island last week to lead the first Business Opportunities Mission to the Pacific.

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

The CNMI government, led by Gov. Juan N. Babauta, wrote Interior Secretary Gale Norton last year 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.

Babauta said that, with the new definition of residency, the law would result in the CNMI losing revenues “in the millions.”

He said the law 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, he said, 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.

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 and to set up a permanent committee composed of representatives of 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.

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