Guam Must Pay Tax Refunds Within 6 Months: Appeals Court

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GovGuam argument about budget interference rejected

By Shawn Raymundo

HAGÅTÑA, Guam (Pacific Daily News, Aug. 27, 2015) – The U.S. 9th Circuit Court of Appeals this week issued an opinion upholding the 2013 court order that mandates the government of Guam to pay out tax refunds within six months of the tax filing deadline.

The government of Guam appealed the ruling to the Circuit Court, contending that the six-month period "unjustifiably tied Guam’s hands in administering its budget," Circuit Judge Marsha Berzon wrote in her opinion issued Wednesday.

She added the court understands governments have their struggles with balancing budgets, especially "in time of economic uncertainty."

"But, as the District Court correctly concluded, Guam’s solution — refusing to pay concededly valid requests for income tax refunds for years on end — was illegal," Berzon wrote.

The governor’s office said Thursday they appealed the decision from the court to pay $2 million in attorney fees "for a lawsuit to fix a problem that was already fixed."

"This lawsuit was also as much about standing up for our rights, for the sovereignty of the government and the people of Guam," the administration said. "Over the last three years, the government of Guam has proven its ability to solve its own problems, to pay tax refunds within the six-month period. We do not need the federal government imposing arbitrary timelines and $2 million awards to attorneys for a lawsuit to fix a problem that was already fixed."

Adelup officials also noted that upon Gov. Eddie Calvo taking office, he said he would introduce legislation allowing the government to borrow money to pay the tax refunds owed several years back. A bill was eventually passed that allowed the government to float a bond for delinquent tax refund payments.

Timely manner

Arguing the local government and some of its officers had for years failed to pay tax refunds in a timely manner — a violation of tax provisions in the Organic Act of Guam — some taxpayers filed suit. The plaintiffs were Rea Paeste, Jeffrey Paeste, Sharon Zapanta and Glenn Zapanta.

They also disputed GovGuam’s practice of expediting tax refunds to those who "desperately needed" their payments. Such taxpayers who were facing medical and funeral expenses could move to the front of the payment line, violating equal protection rights.

"In practice, the expedited refund process was effectively standardless, and it devolved into arbitrariness and favoritism," Berzon wrote.

A statement released from the Law Offices of Ignacio Aguigui, the law firm that represented the plaintiffs, expressed excitement in the Circuit opinion.

"Today’s ruling is a win for all Guam taxpayers and we congratulate our clients, Rea and Jeffrey Paeste and Sharon and Glenn Zapanta, for their courage in bringing this case on behalf of Guam taxpayers," the statement said.

So far this year, the administration has paid about $73 million in tax refunds, covering those who filed their 2014 tax returns by Feb. 16. The last batch to go out was for $2 million on July 31.

In August 2014, the administration didn’t release any batches of tax refunds, but had already paid a total of $88.2 million for the calendar year, which covered tax returns filed by Feb. 19, 2014, according to Pacific Daily News files.

Democratic Sen. Mike San Nicolas sent a letter to Gov. Eddie Calvo on Thursday, urging him to use next month’s anticipated Section 30 money from the federal government to refund the remaining tax returns filed. Section 30 funds come from income tax payments withheld from federal employees and military personnel. GovGuam receives Section 30 money near the end of the summer.

"At this point in the year it is very clear that the only remaining resource available for a large-scale payment of tax refunds is the Section 30 money Guam will receive from the federal government in September," he wrote.

San Nicolas, who chairs the Committee on Finance and Taxation, has criticized the administration for the slow pace releasing tax refunds this year.

"While this cash resource is supposed to be spent during (fiscal) 2016, we cannot continue to make our people wait, and further risk violating the court order that requires to be paid by Oct. 14," San Nicolas said.

The Legislature this week passed the fiscal 2016 budget, which anticipates the fund to be nearly $78 million.

San Nicolas warned that if the pace is slow again next year, he would introduce a measure to tie the Legislature and Adelup’s third- and fourth-quarter budgets to tax refund payments.

"This means if tax refunds are not being paid in a timely manner, it will be Adelup and the Legislature that have to endure the consequences, not our people," he wrote. "The people of Guam should wait no longer for their tax refund than citizens of any other state or territory."

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