The Department of Revenue and Taxation doesn’t verify the accuracy of taxes collected from the sale of tobacco products, according to the Office of Public Accountability, which found there are loopholes that could allow wholesalers to underreport how much tobacco tax they owe.

Government control procedures are useless because tobacco inventory counts are unreliable and government forms that track how much tobacco is removed from the island’s bonded warehouses are not processed in a timely manner, states the audit released Monday.

The audit’s focus was Rev and Tax’s oversight over the bonded warehouses that store tobacco products. It found there still are not rules and regulations for how those warehouses are certified and monitored.

It noted that Rev and Tax never has performed an inventory count on the warehouse for “Wholesaler O” because the warehouse layout limits the ability of Rev and Tax to perform a thorough count.

The audit does not name the tobacco wholesalers, and instead refers to them by assigned letters.

“Guam may be collecting $23.5 million in tobacco tax revenue per year, but is this all?” states a summary of the audit, written by Public Auditor Benjamin Cruz.

Rev and Tax could determine whether tax filings are accurate or reasonable by monitoring the amount of tobacco stored in the island’s bonded warehouses, but it instead has relied on the voluntary compliance of wholesalers, the audit states.

“There are opportunities for tax evasion because DRT does not verify whether the tobacco was actually exported or sold to the U.S military or Guam airport concessionaires,” the report states.

The audit also found that Rev and Tax did not assess tobacco taxes on free or discounted tobacco products distributed by “Wholesaler O,” which was offering multi-pack discounts on cigarettes.

The Accountability Office recommended that Rev and Tax reevaluate the issue of discounted tobacco by “Wholesaler O” or other wholesalers.

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Cruz, a former lawmaker, earlier this year said his accountability office would examine distributor Mid Pacific Distributors’ failure to pay millions of dollars in tobacco taxes.

Rev and Tax filed a tax lien against the company in June 2017, and lawmakers in July 2018 held an oversight hearing on the matter.

The tax lien was for a total of $14.7 million in tobacco taxes. MidPac officials stated the unpaid taxes were inadvertent and it self-reported the matter to Rev and Tax.

Monday’s audit does not name MidPac, but makes reference to “Wholesaler Z”, which in 2017 filed three years of amended returns for tobacco taxes.

According to the audit, Rev and Tax case files do not state how Rev and Tax missed 36 months of incorrect filings by “Wholesaler Z.” It also states Rev and Tax never confirmed the correct tax amount owed by “Wholesaler Z.”

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