A large part of the Virgin Islands tourist tobacco industry may have been shot down by federal legislation that apparently was aimed elsewhere.
A new federal law makes it illegal to bring American tobacco back into the country if it bears a stamp saying it was originally sold for export only.
"All the American cigarettes sold in the Virgin Islands, as far as we can tell, are 'for export only'" William Westman, chief inspector for U.S. Customs based in St. Thomas, said Monday.
St. Thomas retailer Vinnie Mohanani said he learned of the new law over the weekend when a cruise ship passenger visiting his Vissal Duty Free Shop remarked that it was a shame he couldn't take advantage of the low prices on cigarettes. The visitor had been told on board the ship that he would not be allowed to take American tobacco products back home.
The ban covers sales both on islands and on ship.
Mohanani faxed a letter to Customs in St. Thomas asking if the law applies here.
"We're trying to get it clarified," Westman said, adding that V.I. Customs staff had been on the phone much of the day Monday. "We have our counsel looking at it" as well as management staff in Puerto Rico.
Westman said his office had not been formally notified about the law but "we heard rumblings about it" because "they are strictly enforcing it in Florida."
American cigarettes brought into the territory for resale are exempt from the Internal Revenue Tax and from duty. Westman said the IRT is $2.40 for a carton of small cigarettes and $5.04 per carton of large cigarettes. The duty is 2.8 percent of the value, plus $1.26 per kilo.
The exemptions translate to a savings of about $8 a carton, a difference that makes it easy for V.I. retailers to give tourists a bargain. The territory long ago developed a reputation as a good place to shop for cigarettes.
"This obviously is going to have a very big impact" on the Virgin Islands, Westman said.
Between excise and gross receipts taxes, Mohanani estimated the value of cigarette sales to the V.I. treasury at about $20 million a year. That figure could not be verified with government officials Monday. The Bureau of Economic Development does not keep statistics on tax collections, and calls to the Internal Revenue Bureau were not returned.
Westman said it appears the law was directed at wholesalers bringing large quantities of 'for export only' tobacco back into the country and inadvertently caught tourists in a too-wide net. It is being enforced at points of entry, where disembarking passengers are told to put their cigarettes into bins as they go through Customs, he said. Not even an open pack gets by.
The penalty for ignoring the law is a fine equal to five times the value of the tobacco product or $1,000, whichever is greater.
"I doubt seriously that anyone has been penalized" with a fine, Westman said, but their cigarettes are being confiscated.
