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White House Engaged in EDC Mitigation Efforts

Oct. 14, 2004 – Local officials are hoping to mitigate damage done to one of the territory's most lucrative revenue sources by recent Congressional legislation – with the help of the White House.
In a press conference Thursday afternoon, Gov. Charles W. Turnbull said Peter Hiebert, Washington counsel for the V.I. government, has gotten the attention of Reuben Barales, assistant to the president for intergovernmental affairs, and the message back from the White House is that while President Bush is going to sign the offending bill, Bush doesn't want to hurt the Virgin Islands.
Turnbull's remarks were made at a press briefing called Thursday to "update the public of the actions being taken by this administration in light of the passage by both houses of Congress of the American Jobs Creation Act of 2004."
Turnbull said, "I have been advised that the White House is aware of the situation and is looking into ways to mitigate any negative impact on the EDC program."
One of those ways could come out of the actual writing of the rules and regulations relative to the 650-page bill. But permanent regulations could take awhile. One source familiar with the issues quipped, "It took Treasury 18 years to hand down these regulations."
When the Tax Reform Act of 1986 was passed, the V.I. government asked Treasury for guidance on how the new laws should be interpreted relative to the EDC program. The answer never came – at least not until last week. In the meantime, the V.I. was left to make its own decisions, and since the local tax code mirrors the federal code, the V.I. was left to form its own opinions on the tax questions related to the parameters of the EDC program. And, until recently, the local Internal Revenue Bureau routinely issued tax letter rulings.
Suddenly and without warning that all changed a little over a week ago when the bill surfaced out of the House Ways and Means Conference Committee, with portions that turned previously understood tax law upside down. The two primary issues are a now hard-and-fast residency requirement of 183 days and ambiguity relative to source income for beneficiaries.
Under the 1986 bill, revenues coming from the mainland or anywhere else in the world could be considered "effectively connected" and therefore eligible under the program's guidelines, Delegate Donna M. Christensen said last week.
The new legislation, which has not yet been signed into law, appears to have a completely different viewpoint. But that is the gray area that V.I. officials and others are hoping can be appropriately adjusted to ease the potential for substantial revenue losses to the territory.
Hiebert said after the briefing Thursday afternoon that he, along with David Cohen, deputy assistant secretary of the Interior, and other Interior Department personnel, would ask Treasury first for "immediate guidance and then interim regs." Hiebert said. "Permanent regs will take time," something that the territory doesn't have.
While the residency requirement doesn't take effect until Jan. 1, 2005, the changes to the source income become effective the minute President Bush signs the bill, which could be as early as this week.
Turnbull said he was working with the federal government to "make sure rules and regulations are written to do the least damage."
However, Turnbull did not gloss over the fact that the V.I. "will lose a substantial amount of revenues" with the changes.
Earlier in the week he announced that he and Lt. Gov. Vargrave Richards (who had been tasked in June with oversight, after the Treasury issued a warning notice about abuses of the local program) had met with PricewaterhouseCoopers to discuss the impact study it has been contracted to conduct.
The preliminary data should be available in a couple of weeks, Turnbull said. The final study should be completed by year's end. Until then, Turnbull and the other officials in attendance in the Government House second-floor ballroom refused to speculate about the actual amount of potential damages. Turnbull did say it would affect the 2005 Budget passed last week by the Legislature.
Turnbull had assembled several Cabinet members and advisors for Thursday's briefing, including Frank Schulterbrandt, chief executive officer of the Economic Development Agency, the EDC's umbrella organization; Ira Mills, director of the Office of Management and Budget; Bernice Turnbull, Finance commissioner; Nathan Simmonds, director of the Office of Fiscal and Economic Research; and Lauritz Mills, Bureau of Economic Research director.
Notably absent was Louis M. Willis, director of the Internal Revenue Bureau. When queried about Willis's whereabouts, the governor said, "Mr. Willis is off island dealing with some tax matters."
Two independent sources said Willis was on his way, along with IRB counsel Tammy Smalls, to Palau, a tiny island southeast of the Philippines, to attend a conference of territories. Efforts to ascertain the details of the conference were unrewarded.
An Interior spokesperson said while several staff members from Interior also went to Palau for the conference, he could offer no immediate information Thurssday night from his home on the details of the meeting.
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