The V.I. government filed motions Thursday to dismiss two condominium group lawsuits over new condo user fees, arguing the plaintiffs fail to make a legally plausible claim.
In question is whether a new $25 per day of occupancy fees on timeshare units in the territory violates the U.S. Constitution or is discriminatory.
The national lobbying group, the American Resort Development Association’s Resort Owners’ Coalition, filed suit in U.S. District Court May 1. Great Bay Condominium Owners, representing St. Thomas Ritz Carlton Club timeshare owners and individual owners and individual owners Tim O’Brien and Keith Cheatham filed a very similar suit May 2. Great Bay also has asked the court to set aside the fees in escrow, arguing that the V.I. government may be unable to pay otherwise.
The fees were among several new taxes and fees imposed to help balance the territory’s budget in the midst of a severe fiscal crisis. They were signed into law in March and went into effect June 1.
The plaintiffs make several government policy arguments, arguing there “is no indication that any study of the “impact of timeshare activities and components in the Virgin Islands” was ever conducted prior to passage of the Act.” and that timeshare “owners have significantly less impact on the infrastructure of the Virgin Islands than local residents.”
The plaintiffs also complain that the government changed property tax rates in 2008, increasing the rate for timeshare units above that of condominiums, which they say are fundamentally similar.
The core causes of action are the same as those in the ARDA suit: that putting fees on timeshare units violates the Commerce Clause, the Privileges and Immunities Clause and the Equal Protection Clause of the U.S. Constitution, because they affect interstate trade and treat nonresidents in a different fashion from residents.
As with the ARDA complaint, the Great Bay/Ritz Carlton complaint does not say how this fee is distinct from the many other taxes and fees in many U.S. jurisdictions that have been aimed primarily at out of state travelers for many decades. For example, a great many jurisdictions, including the USVI, charge hotel occupancy fees, which are, by the nature of hotels, aimed at getting revenue from visitors instead of residents. Williamsburg, Virginia, a town with a large tourist industry, charges a restaurant meals tax specifically aimed at deriving revenue from out of town and out of state visitors.
The USVI is also not the only jurisdiction to charge extra fees specifically on timeshares. Virginia Beach, Virginia, charges additional fees of $2 per night plus 8 percent occupancy tax. Hawaii charges a transient occupancy tax on timeshares of 9.25 percent per night.
The Great Bay/Ritz Carlton complaint also raises a concern about owners paying the same fee as renters, arguing it amounts to an unconstitutional taking of property:
“Imposition of the Environmental Impact Fee constitutes a cloud on title to each timeshare unit. The Act also has resulted, and will result, in a decrease in the fair market value of Plaintiffs O’Brien’s and Cheatham’s timeshare interest, and of other timeshare owners,” the suit alleges, asserting this “constitute(s) a taking, in whole or in part, of Plaintiff’s protected interests in real property without just compensation, in violation of the Fifth Amendment to the Constitution of the United States,” the complaint says.
The government’s responses argue that if such fees are a title cloud, all fees and taxes on property also would be. The filings make the case that the fees are not discriminatory nor takings of property because they apply to an entire class of property owners, as many taxes do.
Regarding whether the fees are reasonable, the government argues that “the level of contribution, $16.3 million of Impact Fee out of the Virgin Islands’ total budget of nearly $900 million, is reasonable considering the number of timeshare occupancies involved, the amount expected to be raised, the size of the Virgin Islands economy, and size of the government’s budget.” They also argue that case law shows the government does not have to provide precise proof that a tax precisely meets the cost of the services it is meant to pay for.
Regarding the claim that the fees violate the Constitution’s Equal Protection Clause or Privileges and Immunities Clause, the government argues the Equal Protection Clause only applies “to taxation which in fact bears unequally on person or property of the same class.”
Calling any fee a taking would “force immediate return of all receipts to meet the compensation duty and bankrupt the state,” according to the government.
“If the Court accepts their logic, any fee or tax increase would constitute a Fifth Amendment Taking requiring compensation,” the government argues in its motion for dismissal in the Great Bay case.
The motions were expected and routine. The court has yet to rule on any motions or to schedule hearings.