Senate Changing the STARS Act

Existing V.I. tax breaks for movie and video productions in the territory will be completely rewritten – changed to meet film industry expectations and to allow companies to sell tax credits if the credits are larger than their tax obligation – if a bill approved in committee Wednesday becomes law.

The bill sponsored by Sen. Clifford Graham repeals and replaces the STARS Act, which was enacted in 2011 and gave large tax breaks to encourage video and film production. (See Related Links below)

Introducing the measure, Graham said film industry representatives had expressed a desire to have benefits that were more comparable to those offered by a number of states. The new version also ties some benefit levels directly to the employment and spending on the project, so that larger productions get more generous benefits, but always with a net benefit to the territory.

Graham’s bill gives tax credits of 10 to 17 percent of the wages and salaries of Virgin Islands residents employed on the project, which the company can then sell to any other V.I. taxpaying business, if they owe less than the credit. St. Thomas attorney Erika Kellerhals testified the credits were set up that way to give bigger incentives to bigger projects, while also ensuring the territory still benefited.

She gave an example of a company that hired enough employees for long enough to generate $1.5 million in taxes withheld from employees. "They would get a credit equal to $225,000," Kellerhals said. That is a substantial benefit to the company, but much less than the additional tax revenue from the new employment, she said.

It also gives a break on the territory’s hotel occupancy tax, based on the number of rooms booked for how many nights.

Internal Revenue Bureau Director Gizette Watson-Anderson urged senators to amend the bill to limit the sale of tax credits to existing V.I. companies.

Sen. Sammuel Sanes asked, "What would be the downfall of letting any V.I. company get the tax credits?"

Anderson said, "That we would have a reduction in tax liability, which we do not want.”

Speaking for the Economic Development Authority, Frederick Handleman, a special assistant to EDA Chief Executive Officer Percival Clouden, urged senators to extend the amount of time for EDA to vet and approve applicants. The bill requires EDA to approve applications within 10 days, which Handleman said was "woefully inadequate."

"You snooze, you lose," Graham said, adding that if the applicants are not vetted very quickly, other jurisdictions may snap them up.

Voting to send the bill out of committee were Graham, Sanes, Sens. Myron Jackson, Nereida "Nellie" Rivera-O’Reilly and Janette Millin Young. Sens. Diane Capehart and Shawn-Michael Malone were absent.

The committee also voted to approve two CZM permits for the V.I. Next Generation Network that would allow it to lay fiber optic cables between St. Croix, St. Thomas and Water Island. The permits were held in committee in late July, with several senators asking for more information. Graham said viNGN had provided the information and held a vote without additional debate.

When the bill was heard in July, Larry Kuipfer, viNGN’s executive director, said the network is currently paying $40,000 per month for 2.5 gigabits per second of service between St. Croix and St. Thomas. "The high capacity fiber optic cables that we are installing will eliminate this expense and provide vastly increased and more reliable connectivity that can be utilized by all of our customers who are the Internet service providers," he said at the time.

The new cables were manufactured by Alcatel-Lucent and are on ship and will be installed after all the permits have been approved, he said. The cables each have 24 strands of fiber and they are between half an inch and an inch and a half in thickness, depending on how thick their steel armor is.

Plans call for a segment between Brewer’s Bay, St. Thomas, and Frederiksted, St. Croix; Great Bay, St. Thomas, and Christiansted, St. Croix; and Brewers Bay, St. Thomas, and Flamingo Bay, Water Island. Later they plan a second cable to Water Island, starting at Careening Point/Villa Olga on St. Thomas.

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