Crucian basketball star Tim Duncan and the V.I. government are now officially business partners.
Gov. Charles Turnbull announced Thursday that he signed the bill that ratified the 15-year contract between Duncan, his company T.D. Enterprises, Inc and the government. The deal calls for Duncan to make three commercials a year for V.I. tourism and pay his income taxes on his NBA earnings in the territory in return for total tax breaks for his company, T.D. Enterprises.
"This agreement with Tim Duncan Enterprises," Turnbull said, "will bring much needed economic benefits to the territory and in particular St. Croix. In addition, Tim promoting the islands . . . should result in a heightened awareness of the Virgin Islands and should contribute to an increase in visitors…"
For appearing free in the tourism advertisements and the 100 percent exemptions in income, gross receipts and excise taxes, Duncan will pay taxes on his NBA income in the territory. Property taxes will also be waived on T.D. Enterprises’ executive headquarters, two merchandising outlets, and/or two sports bar locations.
In return, the V.I. government will get about one-third of Duncan’s annual $3.33 million NBA income in taxes. But the government’s take should increase substantially because Duncan is in the last year of a three-year, $10 million contract.
It’s likely Duncan’s next contract will be in the neighborhood of $70 million to $80 million over seven years. If Duncan signs such a deal the V.I. could collect, on the low end, almost $4 million a year in taxes.
Other possibilities include a shorter contract for more money each year. However, the NBA currently has an $11 million cap on what players can earn per season.
Once operational, T.D. Enterprises will manage such ventures as Duncan’s endorsement deals, which currently bring in about $2 million a year, said Duncan’s financial advisor Charles Banks in a previous interview. The company’s exemptions would save Duncan about $800,000 a year in taxes. That savings, said Banks, will likely be poured back into the business and investments in the territory.
Originally, the plan was to use the Industrial Development Commission, a program aimed at attracting investors to the territory, to obtain benefits for T.D. Enterprises, Banks said. But the IDC program restricts beneficiaries to certain businesses, he said. Duncan’s contract with the government will allow him to dabble in everything but casino gaming.
The contract also states that T.D. Enterprises’ stockholders, limited to six persons, will be exempt from personal income taxes for as long as they are residents of the territory.
Despite Turnbull’s enthusiasm for the deal, there are some tax experts in the territory who question the legality of the agreement. Some parts of the contract appear unenforceable under U.S. tax laws, the tax experts, who requested that their names not be used, said.
For one thing, it may be difficult for Duncan to establish V.I. residency in order to pay his taxes here, since he has to be outside the territory much of the year playing basketball. For another, the experts say the territory can only give benefits to V.I. source income, not income from product endorsements.
The tax experts also said the contract also gives T.D. Enterprises more generous benefits than the is allowed to give: 100 percent exemption from income tax, gross receipts tax, real property tax and excise taxes.
Even the investment income is sheltered; up to six shareholders would enjoy a 100 percent exemption on income taxes for any dividends from the company. The contract, however, does not say who the shareholders are, nor does it specifically prevent Duncan from selling the company, although the benefits are clearly tied to him.
However, Turnbull pointed out in his transmittal letter that there is a cap on the tax benefits. They may not equal more than a multiple of the amount of personal income tax Duncan pays to the Virgin Islands. In the first year, that multiple is 1.5; in 2001-02, the multiple is 1.75 and for 2003-14, the multiple is 2. If the company tax benefit falls below the maximum allowable in any given year, Duncan may carry forward a credit.
