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Chamber of commerce opposes Senate bid to tax money transfers

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THE Saipan Chamber of Commerce on Tuesday reiterated its opposition to a bill that will impose fees on remittances, saying the measure “is a tax on our citizens and businesses in the midst of economic hardship.”

During the House session’s public comment section, Saipan Chamber of Commerce executive director Maxine Laszlo reiterated the written comment submitted by chamber president Velma Palacios opposing the Senate version of House Bill 21-70.

Palacios told House Ways and Means Committee Chairman Ivan Blanco that by taxing all local wire transfers, for both individuals and businesses, the government “is disincentivizing local commerce at a time when we need to encourage business and the exchange of money for goods.”

H.B. 21-70, as originally drafted by Blanco, proposes to authorize the Commerce secretary to impose reasonable registration and permitting fees on vehicles used by tour operators for profit.

But the Senate Fiscal Affairs Committee deleted the entire title of the bill and transformed it into a tax measure targeting remittances by imposing a $10 fee for each money wire transfer that is not in excess of $250; and 5% of the amount of the money in excess of $250.

In its report, the Senate Fiscal Affairs Committee said: “With the continued uncertainty of the Covid-19 pandemic, identifying revenue sources with minimal financial burden on our community is critical to continue providing services to our people.”

The committee, chaired by Senate Vice President Jude Hofschneider, further states: “This sentiment was repeatedly echoed during the CNMI Fiscal Response Summit conducted in April 2020. Therefore, it was the consensus of [this] committee to replace the original proposed legislation in its entirety with House Bill 21-70, Senate Substitute 1, entitled, ‘To provide for an imposition of certain fees upon money transmission transactions completed by financial institutions for a person; and for other purposes.’”

The committee stated that “for many years, a significant flow of funds earned in the Commonwealth have been transmitted abroad either for commercial or personal purposes. It has become a global and convenient practice to send money through remittance companies as the fastest and most reliable option to provide financial support to families living abroad to assist with day-to-day living expenses, cases of emergency, or business operations.”

Based on the latest financial statements of remittance companies in the Commonwealth, the committee said that since 2017, over $93 million has been remitted out of the Commonwealth.

The 2017 banking annual report indicated that $96.7 million of the remittance was made to countries including the U.S., Guam, neighboring islands of Micronesia, and various locations, the committee report stated.

Furthermore, the committee said, financial statements indicate that the total amount of remittance in 2017 was an increase of 31% from 2016 that reported a remittance of $74.17 million.

“There has been a drastic increase in the total value of remittances made annually, which remains the largest source of external financing and a potential source of government revenue,” the Senate Fiscal Affairs Committee said.

 

“At a time when maintaining the bulk of revenue within the Commonwealth to aid our dwindling economy is challenged with the immense cash flow out of the Commonwealth, it is necessary that legislation be put in place to impose certain fees upon money transmission transactions by licensed financial institutions within the Commonwealth,” the committee said.

But according to Saipan Chamber of Commerce president Velma Palacios, “The way to truly increase revenue for the Commonwealth leads back to the basics of economics.” She said, “We need to increase our exports, attract new businesses and industries to the island, encourage more private sector activity through business relief and grants, and provide more educational opportunities to encourage our people to enter the private sector.”

The Senate version of H.B. 21-70 will not generate more money to the Commonwealth, she said. It will “shift dollars from one person or sector to the government, but…will never lead to…generating more money, and ultimately, will only lead to generating less money in the long run for the CNMI government by discouraging business growth.”

The assistant attorney general for the Division of Revenue and Taxation, Dustin Rollins, who attended one of the committee meetings via video conference has also expressed concern about the Senate proposal.

He said it violates the Commerce Clause of the U.S. Constitution because it discriminates against interstate commerce.

The Commerce Clause operates to prohibit state regulatory activities, which unduly burden interstate commerce, he said.

“Facially discriminatory state laws interfering with interstate commerce are virtually always per se invalid. The proposed legislation imposes fees on remittances abroad and to other U.S. jurisdictions, but exempts ‘transmitting money or monetary value that is to only be received or retrieved at a physical location within the CNMI.’ Thus, because the law only imposes a fee on interstate transactions (and excludes intrastate transactions) it is facially discriminatory and violates the Commerce Clause as a result.”

Rollins added, “The proposed legislation may [also] violate the Equal Protection Clause of the U.S. Constitution because it has a disparate impact on aliens lawfully working in the CNMI. State laws that have a disparate impact on legal aliens may be subject to the highest level of scrutiny in an equal protection challenge. While the proposed legislation does not discriminate on its face, it would overwhelmingly impact aliens lawfully working in the CNMI. The disparate impact is further compounded by the exclusion of intrastate transfers, the vast majority of which are presumably conducted by U.S. citizens residing in the CNMI, not foreign workers. To the extent the underlying purpose of the legislation is to impose a fee on aliens legally present in the CNMI, it would likely fail a constitutional challenge.”

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