The Virgin Islands Daily News

With rum cover-over shrinking, attention turns to Congress

ST. CROIX - As 2013 ends next week, so does the so-called tax extender that keeps rum tax revenues flowing to the territory at a higher rate.

Some V.I. officials say they believe that Congress will keep the rum cover-over rate high by renewing the extender - but the question, they say, is when.

Others have expressed concern about whether the extender will be passed at all.

"I'm confident that sooner or later, the tax extenders will be approved and the rum cover-over will go back to the $13.25," said V.I. Sen. Clifford Graham, chairman of the Senate Finance Committee. "My concern becomes when it is approved, because that will have an effect on cash flow."

The territory typically requests and receives an advance payment from the U.S. Department of Interior on anticipated V.I. rum cover-over revenues for the upcoming fiscal year. Those revenues are based on the $13.50 excise tax that the U.S. government collects on every proof gallon of Virgin-Islands produced rum sold in the United States, a portion of which is returned - or covered-over - to the territory.

Currently, the amount of rum cover-over the territory receives is set at $13.25 per proof gallon, but on Jan. 1, that rate will revert back to $10.50 per proof gallon.

The territory used to get $10.50 per proof gallon, but in 1999, Congress passed legislation that temporarily increased the rebate to $13.25.

Similar measures, extending the higher rate for a year or two, have been passed repeatedly since then, typically with a package of other temporary tax measures that also get extended. Sometimes, the renewal happens after the higher rate has already expired, but Congress typically makes the package of tax extenders retroactive.

V.I. officials have said that the Interior Department has, in the past, provided the fiscal year advance at the $13.25 rate - even if the extender was set to expire during the year.

However, this fiscal year, Interior provided the territory's advance assuming the $13.25 rate through Dec. 31, and the $10.50 rate for the remainder of the fiscal year.

Interior said it would process a second payment if Congress renews the higher rate.

"It may become a cash-flow problem, come April or May," Graham said. The 30th Legislature passed the territory's FY 2014 budget assuming a $13.25 cover-over rate.

V.I. Delegate to Congress Donna Christensen said she believes the package of tax extenders likely will pass Congress without issue, once they come up for consideration.

"I think the chances are very good," she said, noting that she spoke with three members of the House Ways and Means Committee about the issue recently. "They felt certain it would be renewed and would be retroactive as usual."

The tax extenders include measures that have a fairly broad appeal, she said.

"It's a diverse group, a bipartisan group that's pressing for the extenders," she said.

V.I. Senate President Shawn-Michael Malone and Gov. John deJongh Jr. recently raised concerns about the cover-over issue in press releases.

Last week, Malone said he had written to deJongh, calling on the governor to report to the Legislature on his administration's efforts to gain Congressional reauthorization of the cover-over at the higher rate.

Malone's statement said he had first written to the governor on Sept. 19, after being advised about the way Interior had calculated the FY 2014 cover-over advance.

It went to say that Malone has again has requested a status report.

"I offered to work with your team to commence lobbying efforts to achieve this goal. The Senate continues to discuss revenue-generating measures, which should be helpful in addressing a potential revenue shortfall for FY 2014," Malone said in the letter to deJongh.

On Monday, deJongh released a statement that, in part, commented on the matter.

"I have constantly kept the senators apprised of the status of the cover-over extender. This is not an administrative matter, but a Congressional one. The decision will be determined in the House Ways and Means Committee and in the Senate Finance Committee, and we are continually lobbying both groups," deJongh said. "Ultimately the decision is wrapped up with the ongoing tax reform negotiations in Congress, but I believe that eventually the measure to keep the cover-over at $13.25 will be passed."

On Monday, Christensen also discussed the possible effects tax reform might have on the extenders but said conventional wisdom holds that tax reform is not likely to pass in the U.S. Congress in 2014 because of mid-term elections.

DeJongh indicated in his prepared statement that the Interior Department's method of calculating the advance this year will cause the local government problems.

"We all realize that the lower dollar amount will cause a budgetary shortfall for fiscal year 2014, and that it will be necessary to take steps to increase revenues or enact austerity measures or a combination of both," deJongh said. "I've held a number of meetings with the senators to discuss courses of action that we can all get behind. The operating deficit may also be exacerbated by a tourism season that may not reach its full potential, which is still too early to predict. The matching fund issue is a real one that must be addressed, and we will continue our discussions with Congress."

- Contact Joy Blackburn at 714-9145 or email

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