April 29, 2005 – While V.I. government officials try to put a positive spin on what is happening to the V.I. Economic Development Commission program, some in the private sector are not so optimistic.
James T. Carney, a Christiansted certified public accountant who does tax accounting and EDC consulting, calls one change "outrageous, a killer."
Donovan Hamm, an attorney who also represents EDC companies, agrees with Carney about the change. And he says the change is in the statute passed by Congress last year, so it can't be modified in the proposed regulations now being circulated. Hamm said Friday, "You can blame the IRS for a lot of things, but you can't blame them for this."
What they are referring to is a section that states a person cannot be considered a resident of the Virgin Islands for tax purposes if that person, at any time during the year, had a closer connection to the United States than they had to the Virgin Islands.
This means that if a person lived one day in the states as a resident she would not qualify for tax benefits. This basically takes away the tax break for the first year of a company, which could be discouraging for companies starting up.
Carney said Friday, "If they wanted to shut down the program, this is one way to do it. Shut down on the companies coming down here." He said he believes officials in Washington, D.C. were concerned about losing billions of dollars in tax money to the Virgin Islands. He said, "They wanted to get that money."
Carney had been going over the regulations and the statue concerning the EDC companies ever since they came out. He said his analysis indicated to him that there was going to be trouble ahead, but he waited for confirmation before telling his clients the bad news.
He received confirmation that his interpretation was correct from two sources recently.
Winston & Strawn, the Washington D.C. lobbyist for the V.I. government, released a 25-page memorandum on April 19 titled "Summary of Temporary and Proposed Treasury Regulations on Residency and Source of Income in the U.S. Virgin Islands."
In that memorandum it says that anyone moving to the Virgin Islands cannot claim residency there that year.
Attorney Marjorie Rawls Roberts also distributed a memorandum on April 11 saying that explicitly.
Carney said this is extremely "unfair" to the people who came down in 2004 and did everything they thought they needed to do for the benefits, but will now be ineligible for them. He added that this will make people much more hesitant about getting into the program.
Carney also sees problems looming on the horizon concerning source income. He says anyone performing services "with their feet on the ground in the Virgin Islands" won't have any problems.
However, those people who travel to the United States to visit clients will have a harder time claiming that as eligible income because of stricter definitions.
He adds that government projections that show a loss of the EDC program will mean a 20 percent cut from the V.I. government budget just addresses part of the problem.
He says the choking off of EDC companies will have a domino effect hitting the real estate market as well as companies like his that service the EDC market.
He says that last year he was contemplating hiring a couple more employees, but that is not going to happen in the present environment.
He adds that though he is not optimistic "All hope is not lost." He says maybe parts of the program can be salvaged.
No one was available Friday at Lt. Gov. Vargrave Richards' office to respond for this article and a phone call to Delegate Donna M.Christensen was not returned.
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