March 7, 2002 – The U.S. House of Representatives approved a bill on Thursday to extend the territory's rum tax "cover-over" of $13.25 per proof gallon for two more years. This is the law that sends the V.I. government most of the federal taxes paid by mainland buyers of rum made in the U.S. Virgin Islands.
Since 1997, the territory has been receiving $13.25 of the $13.50 in federal taxes paid per proof gallon on rum sold on the mainland. Most of it is sold in bulk to companies that bottle the V.I. product under their own labels. Puerto Rico has similar benefits.
The cover-over as originally enacted by Congress was $10.50 per proof gallon; later, it was increased to $11.30. In 1997, it was raised to the current level.
In recent years, the program has been pumping nearly $75 million a year into the territory's coffers, according to Brian Modeste, an aide to Delegate Donna Christian Christensen. He said most of the territory's rum tax revenues go to pay for bonds floated by the government, while a small portion goes into the General Fund. He did not have a breakdown.
The $13.25 cover-over expired last Dec. 31, but the House bill makes its extension retroactive to Jan. 1. If a the measure does not win approval by the Senate and the White House, the territory's cover-over will revert to $10.50 per proof gallon, costing the territory $15 million to $20 million a year in revenues.
Modeste said the rum-tax extension is attached to the Job Creation and Worker Assistance Act of 2002, a bill to extend federal unemployment benefits by 13 weeks for people whose jobless benefits have run out. "This is part of a carefully orchestrated negotiation," he said of pairing the rum measure with the benefits bill. He said he did not know when the Senate would vote on the proposal.
Christensen said she was pleased that her House colleagues made good on their pledge to extend the rum-tax legislation. "It was an important victory for us to get the Virgin Islands-Puerto Rico rum cover-over accepted as part of the annual package of non-controversial expiring tax provisions," she said.
