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Charlotte Amalie
Thursday, March 28, 2024
HomeNewsArchivesReferring to the Cover Over as a Rebate Is Flatly Wrong

Referring to the Cover Over as a Rebate Is Flatly Wrong

Dear Source,
Actually, this is how it works: All distilled spirits imported into the United States from anywhere in the world are subject to an excise tax of $13.50 per proof gallon. Any product that is at least "92 percent attributable to rum," according to the rules, is considered to be rum. Of the total amount of taxes levied on rum products, no matter their origin, $13.25 per proof gallon is "covered over" to the treasuries of Puerto Rico and the Virgin Islands. This includes excise taxes on rum produced in those two territories and shipped to the states, but is not limited to those imports. (Public Law 98-67, Title II)
From the total amount collected on rum products, regardless of where they are manufactured, a formula of cover over is calculated based on the amount of rum produced in those territories and sent to the U.S. Currently, Puerto Rico receives about 88 percent of this grand total and the Virgin Islands receives about 12 percent. That distribution reflects the percentage of the combined importation of rum from both territories. In other words, Puerto Rico accounts for 88 percent and the Virgin Islands 12 percent of the rum shipped to the U.S. from both territories.
The Diageo deal would, it is claimed, increase the percentage of Virgin Islands rum (from the total shipped from PR and the VI) by some 25 percent to nearly 40 percent. This would in turn reduce the amount covered over to Puerto Rico from 88 to about 60 percent or slightly more, which is why Puerto Rico is crying foul. Referring to the cover over as a "rebate" is flatly wrong. Nothing is paid to the manufacturers; the money goes to the two governments. A rebate would violate the General Agreement on Tariffs and Trade as well as World Trade Organization rules.
A proof gallon is one liquid gallon of spirits that is 50 percent alcohol at 60 degrees F, or 100 proof. A gallon of the napalm-like Cruzan 151 rum is considered to be 1.51 proof gallons. (One senator kept saying "per barrel," as if we were drinking Sweet Light Texas Crude.)
Hope this helps overcome a persistent misunderstanding of the cover-over system.
Robert Hoffman
St. Croix

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