Feds, Am. Samoa Discuss Tax Credits To Stimulate Economy

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

Various options available; return of 936 tax exemption unlikely

By Fili Sagapolutele

PAGO PAGO, American Samoa (The Samoa News, March 14, 2016) – The possibility of resurrecting the federal IRC Section 936 tax exemption is slim to none, while Gov. Lolo Matalasi Moliga is exploring benefits to American Samoa under new federal tax credits such as the New Markets Tax Credit for which the territories qualify, says the governor’s executive assistant Iulogologo Joseph Pereira.

The Internal Revenue Code Section 936 or the Possession Tax Credit, which benefits the local canneries, was phased out a couple of years ago and replaced with the IRC 30A - known as the American Samoa Economic Development Tax Credit, which continues to be extended annually with the current extension to expire the end of this year. IRC 30A benefits only StarKist Samoa, because Tri Marine International was not previously a recipient of the Section 936 tax credit.

And there have been calls by territorial officials for returning Section 936 as a permanent tax credit to benefit not only the canneries but other US companies wanting to invest in the territory.

During last month’s federal Interagency Group on Insular Affairs’ meeting at the White House, US Treasury economist Bill Strang gave a presentation on federal tax credits available to the territories. And he spoke about Section 936, which he says operated from 1976 and "was very successful in some ways, creating activity."

"Even though it created 100,000 jobs, it lost the US Treasury more revenue than all the wages that were paid out. So it was considered to be too expensive," he said adding that the tax credit was finally phased out. Strang didn’t say whether Section 936 would be re-implemented or not.

Responding to Samoa News inquiries, Iulogologo said yesterday that from Strang's comments, the "probability of resurrecting the IRC Section 936 is very slim to none."

"Hence it would be much easier to continue the tax incentives, which are now active such as the 30(A) Tax Credit; however eligibility criteria must be broadened to include all other companies investing in the economy of American Samoa," he said. He also said Governor Lolo requested that the feds expand or make permanent this incentive scheme to provide confidence to potential investors.

Additionally, Strang’s presentation enumerated reasons why the federal incentives such as the IRC 936 and others were phased out. "Mr. Strang said that these incentives were too expensive for the federal government to continue absorbing," Iulogologo said.

Further, the governor raised the issue of vanishing federal incentives, which helped the canneries and manufacturing companies operating in American Samoa remain competitive in spite of the escalation in the minimum wage.

"While the 30(A) tax credit incentive scheme has been extended for one more year, there is no certainty that it will be extended next year," he said.

OTHER TAX CREDITS

Strang also spoke at length about the New Markets Tax Credit, for which the territories qualify that was put in place about 2000. Except for Puerto Rico, he said he knows of no projects being funded under this tax credit for the other four territories — American Samoa, Guam, Northern Mariana Islands and US Virgin Islands.

He explains the tax credit is given to investors, equity investors, community development financial organizations that lend money at lower rates for development projects that are in "high poverty or relatively high poverty" areas.

Administered by the IRS, he says most of the projects for this tax credit are buildings, hotels, and some small business projects. In Puerto Rico, he said two community financial institutions there have financed 7 projects.

While acknowledging that this tax credit is "complicated", Strang said "its something that is a potential benefit for territories in the future."

Asked for comments, Iulolologo said, "We are now exploring the New Market Tax Credit incentive measure to ensure that American Samoa is eligible to participate in this initiative. We are also exploring with the US Treasury other potential incentives available to companies operating out of American Samoa."

Iulogologo said the governor’s written submission DOI-Office of Insular Affairs highlighted the importance of federal incentives "to buttress the government's efforts to attract companies to diversify its economy so our economic vulnerability attributed to our sole dependence on the two canneries."

Other tax credits cited by Strang are provisions of the PATH Act, which includes the American Opportunity Tax Credit as well as the Triple Tax Exempt Bonds.

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