ST THOMAS, USVI -- Debra Gottlieb, director of the US Virgin Islands Office of Management and Budget, has sent a letter to federal officials urging them to reconsider the rate they used in calculating the territory’s anticipated revenue from rum taxes for the coming fiscal year.
OMB Director Debra Gottlieb
The letter, addressed to Deputy Assistant Secretary for Insular Affairs Eileen Sobeck, argues the US Virgin Islands governor decides the duties, taxes and fees to be collected and therefore the amount of the Internal Revenue Matching Funds advance payment the territory receives every year through its rum cover-over program.
The Interior Department recently announced that the fiscal year 2014 advance for the cover-over program would be $193,166,475, well short of the $263,928,448 requested by the US Virgin Islands government. The reason for the discrepancy is that Interior officials calculated the advance payment based on a reversion of a temporary rate at the start of the new year to one that is lower.
The territory’s calculation maintains the $13.25 current rate for the entire fiscal year -- a calculation more in line with historical precedents. The US Virgin Islands has already incorporated that larger amount into its fiscal year 2014 budget.
“Non-receipt of those funds will result in severe financial hardship, along with the corresponding and far-reaching economic repercussions, to the territory,” Gottlieb wrote to Sobeck.
The United States Secretary of the Treasury, through the Secretary of Interior, is required under Internal Revenue Code to provide the US Virgin Islands government an advance payment on the estimated amount of Matching Funds Revenue. The law mandates, however, the advance should be based on the territory’s governor’s estimate made prior to the start of the fiscal year, Gottlieb explains.
Federal officials can adjust those payments later to ensure the amounts covered-over to the territory match up with actual collections.
The letter notes that the United States Congress has “regularly and seamlessly” extended the temporary cover-over rate of $13.25 since it was first adopted in 1999, even extending it retroactively on occasion when Congressional scheduling allowed the rate to temporarily expire.
For that reason, it remains “a very real possibility” that even if the temporary rate were to expire at the end of the year, Congress would act to extend the rate retroactive to December 31, 2013. If the less likely scenario of no rate extension prevails, the Interior Secretary can always calculate in an adjustment when allotting the 2015 advance to the territory.
The US Virgin Islands government is currently working with Congressional tax-writing committees to make the temporary rate permanent, or at least secure its regular extension, according to Gottlieb.
The Interior Secretary has “ample discretion” to calculate the 2014 advance payment based on the temporary cover-over rate that currently is in effect and is likely to be extended, Gottlieb wrote, urging the Office of Interior Affairs to do just that for the good of the US Virgin Islands.