Oct. 7, 2004 – The V.I. didn't end up with as much breathing room as anticipated once the final write-up of the much-in-the-news Congressional conference report surfaced Thursday.
What was touted Wednesday as a year-long reprieve on new restrictions to the types of income eligible for 90 percent tax breaks under the territory's Economic Development Commission program turned out to be no reprieve at all. (See "V.I. Gets Some Breathing Room on Congressional Bill") And Congress voted 280 to 141 to support it Thursday night.
However, where the amendments to the American Jobs Creation Act of 2004 ended up is far better than the original language, which would have made the new provisions for source income retroactive to Jan. 1, 2004, according to Peter Hiebert, Washington counsel for the V.I. government.
Still, the bill completely changes the federal tax laws applicable to the EDC program, according to Delegate Donna M. Christensen, despite the Treasury Department's insistence that the bill merely modified existing law.
And it appears that was not the only discrepancy in the ongoing drama that has been played out between Washington, D.C., and the Virgin Islands over the last four days.
Lobbyists and others expected the final conference report would end up delaying the implementation of rules that dramatically impact the V.I.'s tax benefit program for a year. And Lt. Gov. Vargrave Richards issued a press release Wednesday night saying just that.
But for the eligible income component, that's not true. The bill passed by the House Thursday – and expected to go before the Senate Friday – reads that the change will take effect as soon as the president signs the bill.
On the upside, the V.I. did get a reprieve on the new residency requirements mandated by the Treasury Department, via the joint House and Senate Ways and Means Conference Committee. The new 183-day rule doesn't go into effect until Jan.1, 2005.
The other upside, according to Hiebert, is that even companies that will be required to pay full taxes on income not made in the V.I. from the time the bill is signed until the end of the tax year on Dec. 31, will pay those taxes into the V.I. coffers.
But that's small consolation for some EDC beneficiaries, many of whom feel they've been completely blind-sided by the last minute amendment that was added at the insistence of Treasury last weekend after lobbyists for the companies and V.I. representatives thought they had reached a completely different agreement.
Rick Moman, chairman of Corporate Services Group LLP, said Thursday, "Every single Virgin Islander should be calling Congress, the White House, Representatives, everybody – and telling them what this bill is going to mean for the Virgin Islands."
Some say those losses could far exceed the conservative $115 million estimates based on V.I. Bureau of Internal Revenue Director Louis M. Willis's take that EDC beneficiaries contribute about 25 percent of the territory's revenues.
Hiebert said the potential losses created by the dramatic, heavy-handed changes would be more than financial. He said the EDC program "brought increased intellectual capital and increased creativity, as well as financial resources."
But Hiebert and others don't necessarily feel the new regulations spell the end of the EDC program.
Bona fide residents will restructure under the new guidelines and continue operating in the V.I., several people have predicted.
And Treasury has been given the option in the bill to make exceptions to the general rules established by the bill both for residency and source income. That could be good or bad, according to one informed source; however. "The devil is in the details," he said. Treasury could use the exceptions to offer leniency or they could use them to further cripple beneficiaries legitimately attempting to do business in the territory, he said.
The conference report sheds some light on Treasury's motivation for lowering its boom on the V.I. "The conferees also intended for this authority to be used to prevent abuse, for example to prevent U.S. persons from avoiding U.S. tax on appreciated property by acquiring residence in a possession prior to its disposition."
"The conferees are further concerned that the general rules for determining whether income is effectively connected with the conduct of a trade of business in a possession present numerous opportunities for erosion of the U.S. tax base," the report said.
The Committee Report cannot be changed or amended at this point. Assuming it passes the Senate vote, it will then go to the president for signature, which could happen as early as next week.
Christensen said Thursday she was concerned for all the Virgin Islanders who had returned home when the high-end jobs started to become available through the program beneficiaries.
"They are going to be really disappointed," she said. "It's really sad."
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