ST THOMAS, USVI -- US Virgin Islands Office of Management and Budget director Debra Gottlieb said on Wednesday that the annual Internal Revenue Matching Fund advance payment of excise taxes collected on US Virgin Islands rum imported into the United States will be less than requested by the USVI government. The reduction is a result of a decision made by the Department of the Interior that will reduce contributions to the General Fund for the new fiscal year that opens on October 1.
OMB Director Debra Gottlieb
“We received notification of the reduction recently, after making our official submission in mid-August and I have already shared this information with Senate president Shawn Michael Malone, chairman of the Finance Committee Senator Clifford Graham and legislative post auditor Jose George,” Gottlieb said of the anticipated negative effect of a payment almost $71 million dollars less than projected.
Gottlieb explained that at the beginning of each fiscal year, the US Department of the Interior advances to the US Virgin Islands the amount of excise tax revenues estimated to be earned during that fiscal year based on estimates provided by local rum producers: Beam, Inc. and Diageo PLC.
“For Fiscal Year 2014, the Virgin Islands requested an advance payment of $263.9 million based on the companies’ estimated rum production and calculated that payment at the existing cover-over rate of $13.25 per proof gallon,” Gottlieb said, adding, “In its response, Interior took note of the fact that the current rate expires on December 31, at which time it will revert to $10.50 per proof gallon unless Congress acts to extend it.”
As a result, Interior has calculated the advance payment based on the $13.25 rate until December and at the lower $10.50 rate for the remainder of the fiscal year -- January to September 2014. Gottlieb said the change in calculation has reduced the payment to $193.1 million -- $70.8 million less than the government requested.
“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.
Governor John de Jongh said the cover-over rate is extended by Congress every two years but 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 remains at the higher dollar value, thereby ensuring the US Virgin Islands get the payment at $13.25.
Gottlieb said in the past, once the cover-over rate extender is approved by Congress, the government receives 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.”
“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,” de Jongh said.