CNMI's delegate seeks clarification from US Treasury on use of federal tax revenues
The delegate for the Commonwealth of the Northern Mariana Islands (CNMI) to the United States Congress, Kimberlyn King-Hinds, has formally asked the US Treasury to clarify how fedeal taxes generated in the territory are being utilised.
Delegate Kimberlyn King-Hinds sent a formal request to US Treasury secretary Scott Bessent seeking clarification.
According to Section 703(b) of the CNMI's Covenant with the US, federal income taxes and other federal revenues derived from sources in the CNMI needs to be returned to the local government.
In her letter, King-Hinds raised concerns that significant tax revenues linked to federal activity in the CNMI are not being returned to the local government as the Covenant provides.
She pointed specifically to recent Department of Defence construction projects on Tinian totaling more than $153 million. Despite the scale of federal spending, the CNMI government received only $87,000 in reported tax revenue.
"This provision was included in the Covenant to ensure that when activity happens in the CNMI, the returns from that activity are shared with the CNMI," she said. "
"The people of the Northern Marianas and our government should see the benefit of economic activity occurring in their islands, especially when it is federally funded."
Section 703(b) outlines a range of federal taxes that are to be paid into the CNMI Treasury, including income taxes derived from the CNMI and taxes on goods produced or consumed in the Commonwealth.
King-Hinds noted that the provision applies regardless of where a contractor is headquartered, so long as the income is derived from work in the CNMI.
"Nearly five decades after this language was adopted, we still do not have clear implementation of this section," she said.
"As more federal funding and contract work flows into the CNMI, the question of how those revenues are treated under the Covenant is increasingly urgent."
King-Hinds is requesting that the Department of Treasury clarify its interpretation of Section 703(b) and determine whether income taxes collected on work performed in the CNMI, particularly by off-island contractors, are appropriately credited to the CNMI government.
She also indicated that if legislative steps are needed to reinforce the Covenant's requirements, she is prepared to work with Congress to advance those changes.
"This is a practical issue with real consequences for the CNMI's ability to operate and plan for the future," King-Hinds said.
"The Covenant will only endure if we remain committed to upholding its terms and ensuring its provisions are followed, including making certain the CNMI receives the revenues it is owed. I appreciate Secretary Bessent's attention to this request and look forward to a constructive dialogue on how we can ensure the Covenant is implemented as intended."
During a recent CNMI House of Representatives hearing, Rep. Marissa Flores said the CNMI only collected a mere $87,000 in fees and taxes from $153-million worth of military activities in the Northern Marianas.
Flores shared that data, which she said was shared at a recent meeting with the military, at the end of the House Standing Committee on Ways and Means budget hearing from the Department of Finance (DOF) last 9 July.
"Why are we not collecting? What is the problem?" Flores asked DOF and the Division of Revenue and Taxation.
"All this military build-up is happening…Are you collecting tax on developer's tax at all with the military?" she added.
Division of Revenue & Taxation director Daniel Alvarez responded, "I do not believe the military projects fall under developer tax. I would probably have to confirm that with legal."
Flores said the CNMI also needs to monitor how many military developers are being brought in because the island does not have the workforce.
"We're losing money in that area. So many projects came and left, and we're only charging on the construction tax. Again, which is another problem, because now we know that they're bringing in their construction material," she explained.
The lawmaker recommended that DOF have an increased presence on Tinian.
Finance Secretary Tracy Norita later clarified that it has been a long-standing issue.
"This is a conversation that has been going on between the municipality of Tinian and my office and [Department of Public Works] on who's going to assess the tax.
"We've received information from DPW, I believe they've asked for [the Attorney-General's] opinion on whether they can assess the tax. To this day, I don't believe they're assessing it because there is no legal authority to assess the developer's tax on the military projects.
"And so at this point, I believe it's legislation that's required to specify what exactly is exempted from the developer tax, whether it's a military project with an independent contractor or only military projects that are conducted by the military themselves," Norita added.
"So again, it goes back to the legislation and the authority for DPW to assess the developer's tax."
DPW Secretary Ray Yumul said they submitted an internal Legal Services Request form to the CNMI AG a few months ago but have not received a response.
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