Public auditor seeks repeal of deferred tax system for cigarettes

WAREHOUSE: A bonded warehouse in Barrigada Heights is shown in July 2018. Post file photo

The Seattle Field Division of the federal Bureau of Alcohol, Tobacco, Firearms and Explosives has confirmed its agents are "reviewing the facts and allegations" against Mid Pacific Distributors Inc. made in the two letters they received from a Guam senator.

Jason Chudy, public information officer for the Seattle Field Division, which has jurisdiction over Guam, stated in an email response to The Guam Daily Post that they are determining whether the ATF has the appropriate jurisdiction to investigate.

Sen. Michael San Nicolas sent two recent letters to the ATF. The Department of Revenue and Taxation had filed tax liens, assessing more than $14 million in unpaid tobacco taxes, allegedly owed by MidPac over a few years. 

Mid Pac did state last week it self-reported its tax obligations and has arranged a payment plan with Rev and Tax. MidPac denied allegations of tax evasion.

Speaker Benjamin Cruz also is calling for a federal investigation. In letters to the FBI and the U.S. Attorney's Office last week, he asked for a probe into what he called “the possibility of tax evasion” and “cigarette smuggling.”

Cruz asserted the possibility of alleged smuggling because tobacco tax payments are supposed to be paid before they move out of a bonded warehouse and prior to being sold at island retail stores.

Both entities have declined to comment.

'Difficult to believe'

San Nicolas said he finds it “difficult to believe” MidPac's claim that a $14.7 million tobacco tax liability could be “overlooked” for three years and discovered only last year.

John T. Calvo, president and general manager of MidPac, in a written statement last week said MidPac's financial statements are audited annually and that it pays millions of dollars in taxes every year.

Calvo said MidPac "discovered issues with its reconciliation of tobacco taxes last year and unilaterally brought the matter to the attention of the Department of Revenue and Taxation.”

On ThePoint radio station Friday, San Nicolas told host Ray Gibson, “I'm of a mind that this was product that was sold” and it looks like “it was underreported.”

“I think that’s what happened in the MidPac case,” he said.

San Nicolas wrote to the ATF that "contraband enforcement is necessary" if taxes were not paid on tobacco that was removed from a bonded warehouse, where taxes are supposed to be assessed upon retrieval.

Calvo has called the accusations made by Cruz and San Nicolas “baseless” and “entirely false.”

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