House Speaker Savali Talavou Ale has initiated the move to implement a sales tax in American Samoa with a 7% sales tax legislation introduced in the House on Monday. The newly proposed tax, if enacted into law, will then repeal the “wage tax” that was established to help LBJ Medical Center, and is paid only by wage earners in the territory.

The sales tax would not apply to goods and services such as prescription drugs and medical services, according to the language of the bill, which is assigned to the House Ways and Means Committee for review.

If endorsed by the Fono and signed into law by the governor — whose administration is working on a similar sales tax measure — the Sales Tax measure will create a new chapter under the American Samoa Code Annotated, local law.

According to the bill, the sales tax would become effective Jan. 1, 2016, which is the same date the 2% “wage tax” is to be repealed.

The bill’s preamble says that as the territory moves towards a greater degree of fiscal autonomy in these difficult financial times, it is important to seek fair and equitable ways of funding the cost of government and the cost of funding infrastructure projects that are “critical to our well-being”.

It points out that there are only five states and one U.S. territory that do not have a sales tax on some or all retail sales as a means of generating a secure revenue stream to help fund a part of the costs of state or territorial operations.

Additionally, 38 states allow county and municipal governments to levy additional sales sales. In the 38 states that levy a sales tax and authorize an additional sales tax at local levels, the total sales tax ranges from a low of 4.35% to a high of 9.45%.

In 2012, a local law imposed a “wage tax” on all wage earners in American Samoa, which is “a highly regressive tax” having a disproportionate impact on lower income wage earners.

“A sales tax, which is also considered a regressive tax, is less so than the wage tax as it taxes expenditures only and not gross income, and will generate revenue from spending across all income levels,” the bill states.

For the privilege of selling tangible personal property and rendering of services at retail, a tax is imposed upon all retail goods and services at the rate of 7% of gross receipts from all such sales in the territory, according to the language of the bill.

The bill also provides an explanation of tangible personal property, services rendered, retailer, sales prices and gross receipts. Additionally, the measure outlines the role of the retailers in the collection of the sales tax, submission of the tax to the ASG Treasury Department and penalties for violation of the proposed law.

Other goods and services exempted from the sales tax include:

•    Prescription drugs — sale for human consumption, dispensed by a doctor or medical services and related fees.

•    Fresh food — sale in open air public markets, wayside stands or roadside stands by the original and local producer of: fresh, unprocessed fruits, vegetables and nuts; eggs; live poultry; live pigs; and unprocessed fish sold the day they were caught. This exemption does not apply to the sale of imported food.

•    Occasional sales — this includes a sale of property not held or used by a seller in the course of activities for which he is required to hold a business license.

•    Nonprofit organizations — groups organized and operated for charitable, religious or educational purposes, or hold a tax-exempt status as a 501(c)(3) organization under the Internal Revenue Code.

•    Tuition — sales tax does not apply to the cost of tuition and fees to attend an educational institution, whether public or private. The exemption does not apply to the sale of school books or school supplies.

•    Local transportation fees — such as fees associated with using buses and taxis.

•Petroleum products — these products are already subject to excise tax under local law.

Hearings on the bill are not expected to be scheduled anytime soon, since the Fono is going on a mid session recess, which begins at the close of business today(Wednesday) and is scheduled to resume the first week of August.

BACKGROUND

During Fono hearings on some of the revenue measures the administration had submitted for review earlier this year, some lawmakers suggested a sales tax, which could then apply to everyone. ASG officials testified that the Administration was in fact working on such a proposal for submission to the Fono this year.

Several years ago, a sales tax was in place for American Samoa but was later repealed. One of the biggest problems encountered at the time was the collection of the tax sales from merchants.

Speaking at a Chamber of Commerce meeting in May this year, Tax Office manager Richard Jimmerson acknowledged that the administration was working on the sales tax proposal. To ensure success of this proposed sales tax, Jimmerson said he is looking at issuing an employer identification number (EIN) for every business license. “I will track every business on this island, using that employer's identification number. It will determine those people who are paying and those people who are not,” he said. (See Samoa News edition of May 26 for details.)