CONSTRUCTION HEADLINE
by James Martinez
GRT EXEMPTION ISSUE AFFECTING SUBCONTRACTORS WORKING ON FEDERAL CONSTRUCTION PROJECTS
It has been brought to our attention in recent months that subcontractors, working for a prime contractor on federal construction projects, are having issues with their GRT tax exemption at the Department of Revenue and Taxation (DRT). At issue is federal legislation that exempts prime contractors working exclusively on federal construction projects within the military fences in any state or territory from the requirement of obtaining a state-issued contractor’s license. In other words, if a contractor is working exclusively on a federal construction project here in Guam, meaning no other local work anywhere on the island, they are not required to obtain a Guam Contractors License issued by the Guam Contractors Licensing Board. However, they are required to obtain a Guam Business License from DRT in order to conduct business here According to P.L. 30-230, AN ACT TO AMEND §26201 AND §26202(e) OF ARTICLE 2 OF CHAPTER 26, TITLE 11, GUAM CODE ANNOTATED, RELATIVE TO THE BUSINESS PRIVILEGE TAX ON CONTRACTORS, Section 3. §26202(e) of Chapter 26 of Title 11 of the Guam Code Annotated is amended to read as follows: "(e) Tax on Contractors. There shall be levied, assessed and collected a tax rate of four percent (4%) measured against the gross income of any contractor; provided, that there shall be deducted from the gross income of the taxpayer so much thereof as has been included in the gross income earned from another taxpayer who is a contractor as defined in §26101 (b) and who has already paid the tax 14 | JANUARY2015
levied under this Subsection for goods and services that include the deductable gross income of the taxpayer who is a contractor; provided, that any person claiming a deduction under this Subsection shall be required to show in the person's return either the name and contractor's license number or the registration number for a professional engineer, architect or land surveyor or the Certificate of Authorization (COA) number for a business authorized to provide engineering, architecture or land surveying services by the Guam Board of Registration for Professional Engineers, Architects, Land Surveyors of the person paying the tax on the amount deducted by the person." Based on Section 3. §26202(e) of Chapter 26 of Title 11 of the Guam Code Annotated above, in order for a subcontractor to claim a GRT tax exemption for work performed, they must submit a return with the name of the contractor and the contractor’s license number of the company paying the tax on the amount deducted by the subcontractor. Similarly, the same holds true for subcontractors providing work and/or services for businesses authorized to provide engineering, architecture and land surveying services by the Guam Board of Registration for Professional Engineers, Architects and Land Surveyors (PEALS). In the same manner, a subcontractor must also file a return with the name of the company and the registration number of the professional engineer, architect and land surveyor in order to claim a GRT tax exemption for work and/services provided to these companies. In a perfect world of contracting, this process may seem simple and easy to administer. But we are not living in a perfect world. There are federal laws, rules and regulations that contraCONSTRUCTION NEWS BULLETIN
dict local law and in most cases, if not all, these federal laws, rules and regulations trump local law making this seemingly easy process more difficult. GCA advises subcontractors to get a copy of their prime contractor’s license issued by the Guam Contractors Licensing Board (GLCB). If they do not have a Guam Contractors License, the subcontractor may not be eligible to claim the tax exemption and may be liable for paying the four percent (4%) GRT on the revenues generated from this contract even if the prime has a Guam business license and pays the GRT as required. The law is specific that subcontractors can claim an exemption on the GRT, provided that they submit the name of the prime contractor and their contractor’s license number issued by the Guam Contractors Licensing Board OR the company name, registration number or Certificate of Authorization (COA) if working for a company engaged in engineering, architecture or land surveying and registered with the PEALS Board. This DOES NOT include a Guam business license. Further, it is advisable to include your associated costs for GRT in your proposals to such contractors. For the most part, prime contractors working exclusively on federal construction projects here in Guam are working within the law, but a federal rule which exempts them from obtaining a state-issued contractors license for a state or territory outside their licensing jurisdiction is not consistent with our local law and this creates a problem for the subs when they file their GRT. Until we can resolve this problem, the GCA advises all subcontractors to do their due diligence to ensure they are eligible to claim a tax exemption under this law.
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