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Charlotte Amalie
Monday, June 27, 2022
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Feds Slash Advance Payment on Rum Excise Taxes by More than 25 Percent

Uncertainty over federal tax policy has caused the annual advance payment of excise taxes collected on Virgin Islands rum to be cut by 26 percent from the amount requested by the Virgin Islands government, V.I. Office of Management and Budget Director Debra Gottlieb said Wednesday.

The reduction is a result of a decision made by the Department of the Interior, which will reduce contributions to the General Fund for the new fiscal year that opens on Oct. 1.

The V.I. government had requested an advance payment of $263.9 million. Due to uncertainty over congressional budget talks, the U.S. Department of the Interior has reduced the amount it will advance to $193.1 million – $70.8 million less than requested, according to Gottlieb’s statement, released Wednesday by Government House.

“We received notification of the reduction recently, after making our official submission in mid-August,” Gottlieb said, adding that she had already shared the anticipated negative effect of the reduced sum to Senate President Shawn-Michael Malone, Finance Committee Chairman Clifford Graham and Legislative Post Auditor Jose George.

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Gottlieb explained that at the beginning of each fiscal year, the U.S. Department of the Interior advances to the Virgin Islands the amount of excise tax revenues estimated to be earned during that fiscal year, based on estimates provided by the territory’s local rum producers: Beam Inc., which owns Cruzan Rum, and Diageo PLC, which produces Captain Morgan’s Rum. Both distilleries are on St. Croix.

Gottlieb explained that the request for Fiscal Year 2014 was based on the estimated rum production, calculated at the existing cover-over rate of $13.25 per proof gallon.

“In its response, Interior took note of the fact that the current rate expires on Dec. 31, at which time it will revert to $10.50 per proof gallon unless Congress acts to extend it,” she said. The $2.75 extension has regularly been approved.

But this year, Interior calculated the advance payment based on the $13.25 rate until December, then on the $10.50 rate for the remainder of the fiscal year, January to September 2014.

“The past practice of Interior has been to pay at the existing cover-over rate, therefore this change was not expected,” the OMB director explained.

Gov. John deJongh Jr. said Wednesday that the cover-over rate is extended by Congress every two years, but that this is the first time that Interior has prospectively reduced the advance payment. When the cover-rate is extended, it is normally a retroactive calculation, allowing the cover-over rate to remain at the higher dollar value, thereby ensuring the Virgin Islands get the payment at $13.25.

Gottlieb said that in the past, once the cover-over rate extender has been approved by Congress, the government received an adjustment within a relatively short period of time.

“However, because of the debate in Congress regarding tax reform, it may be some time before the rate is extended,” she said.

The governor said the V.I. is keeping a close watch on the debate.

“The issue of tax reform is one that we are closely monitoring and making sure our positions on the cover-rate, statute of limitations and residency requirements are being heard by the Senate’s Committee on Finance and House Ways and Means Committee,” deJongh said.

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