March 10, 2004 – Five months after its certificate as an Economic Development Commission beneficiary expired, Innovative Telephone has applied for a renewal of its tax benefits, despite having told the Public Services Commission last year that it would not do so.
Frank Schulterbrandt, chief executive officer of the Economic Development Authority, the umbrella agency over the EDC, said on Tuesday that Innovative Telephone has "submitted an application for extension of benefits."
In the EDC's review of the application, Schulterbrandt said, issues were raised concerning whether the company had been in compliance with its obligations under the original certificate.
"Companies must be in compliance before they can get an extension on their benefits," Schulterbrandt said.
The phone company — then known as V.I. Telephone Corp., or Vitelco — was first granted beneficiary status by what was then called the Industrial Development Commission in May of 1996. The certificate it received, effective Oct. 1, 1998, through Sept. 30, 2003, allowed the company to receive the following tax breaks and other privileges in exchange for certain obligations:
– 100 percent exemption from gross receipts taxes.
– 100 percent exemption from excise taxes on the importation of raw materials and component parts used in its production process and of building equipment and machinery.
– 100 percent exemption on real property taxes.
– 90 percent exemption from V.I. income taxes.
– Exemptions on withholding tax on dividends and interest.
Under the terms of the certificate, Innovative was obligated to:
– Invest no less than $100 million locally.
– Employ no fewer than 421 full-time employees, of which at least 80 percent were required to be V.I. residents.
– Provide its employees with health, dental, life and accident insurance; 401(k) retirement-savings plans; and an employee stock ownership plan.
– Provide 10 college scholarships a year of $1,000 apiece for the duration of the benefit period.
– Assist schools in the territory to gain access to the Internet.
– Contribute $40,000 yearly to the Boys and Girls Club.
– Continue its sponsorship of the St. Thomas Vitelco Youth Strikers Program and establish a similar program on St. Croix.
– Contributing $5,000 yearly to both St. Thomas and St. Croix Little League Baseball.
Schulterbrandt said on Tuesday that he could not specify which of the obligations the company had not met because the matter remains under review.
Last April, officials from Innovative told the Public Services Commission that they would not seek an extension of their benefits after the certificate then in effect expired.
Rate increase approval presumed expiration of benefits
That same month, in considering a request from the telephone company for a rate increase, the PSC voted to comply with Innovative's request that the commission exclude the phone company's tax benefits in calculating its rate of return, since the benefits were to expire in September.
This move was contrary to the recommendation of the PSC hearing examiner, Frederick Watts, who also had recommended that the maximum allowable rate of return be reduced to 10.62 percent from the current 11.5 percent. The commission also rejected that recommendation.
By ignoring the receipt of benefits by ICC the PSC, in effect, boosted ICC's apparent costs, thus allowing a larger rate increase than would otherwise have been possible.
In August, the PSC approved an increase of about 17 percent in the phone company's tariff governing the rates for its various services. In October, a challenge was filed in Territorial Court. (See "Approval of phone rate hikes appealed to court".)
The Source confirmed in November that, as anticipated, the EDC benefits did expire at the end of September. An EDC official said at that time that the phone company had not expressed any desire to renew its certificate but that there was no deadline for doing so. David Sharp, Innovative Telephone president, also contacted at that time, declined comment. (See "EDC benefits lapse for Innovative Telephone".)
On Jan. 23 of this year, Sen. Adlah "Foncie" Donastorg, a longtime critic of telephone company operations vis a vis government regulations, wrote to Schulterbrandt asking for a status report on the EDC's review of Innovative Telephone's compliance with the terms of its tax certificate.
Donastorg said Schulterbrandt had "stated on the record that findings related to violations" of the tax benefits agreement "would be released pending a 'show cause hearing'" by the Economic Development Authority. "These findings have not been released and I am unaware as to whether you proceeded with the planned hearing," the senator wrote.
"More than three years ago, representatives from the EDA stated that ICC was out of compliance with the terms of its tax exemption agreement, yet to my knowledge no action has been taken by EDA to penalize this corporation or to recoup lost tax revenues," Donastorg wrote.
Donastorg also asked Schulterbrandt in the letter if he could confirm widely circulated reports that Innovative Telephone had applied for an extension of benefits. "If this is indeed the case," he wrote, "how can EDA even consider such an application when matters related to the previous agreement remain unresolved?"
Innovative announces plans to invest $100 million
Last week, Jeffrey Prosser, chief executive officer of Innovative Communication Corp., the parent company of Innovative Telephone, announced in a release datelined from West Palm Beach, Fla., where he resides, that Innovative Telephone "will invest $100 million over the next five years on capital projects in the U.S. Virgin Islands."
"We want our Innovative Telephone Company to have the state-of-the-art technology and infrastructure to better serve our business and residential customers," Prosser said in the release.
The release noted that ICC is headquartered on St. Croix, is privately owned, and has operations "throughout the U.S. and British Virgin Islands, Sint Maarten, St. Martin, Guadeloupe, Martinique and France."
In November Keithley Josesph, PSC executive director, said that Innovative officials "gave us their word that they were not going to renew" their application for benefits.
Innovative Communication Corp. spokesman Thomas Dunn was contacted on Wednesday for comment on the submitted application for extension of benefits. He asked who had provided that information to the Source. "This is a breach of confidentiality," he said, adding that he would contact the EDA's Schulterbrandt "and get back to you."
Jean Etsinger also contributed to this report.
Publisher's note: correction: The Source initially reported that Keithley Joseph, PSC executive director, said on Monday that Innovative officials "gave us their word that they were not going to renew" their application for benefits. Joseph actually said that in November 2003.
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