July 7, 2003 – Five years ago, Sen. Adlah "Foncie" Donastorg sued the government of the Virgin Islands — meaning the executive branch — over what he charged was its failure to enforce a 1980 law calling for at least 4.5 percent of income tax collections to be set aside each year for the purpose of issuing refunds.
Donastorg also concluded that a set-aside of more than 4.5 percent was needed, and he introduced legislation that was passed increasing the percentage to at least 10 percent.
In an order signed on June 24 and announced publicly by Donastorg on Monday, Territorial Court Judge Brenda Hollar ruled that the executive branch has been unsuccessful in its repeated efforts over these last five years to get the lawsuit dismissed.
That doesn't mean Donastorg has won the suit. It merely means that he is entitled to have his day in court. And that's assuming that the executive branch doesn't fight the decision — a risky assumption given the V.I. Justice Department's response to other recent court rulings not in the government's favor. Hollar gave the administration 10 days in which to file an answer to the senator's "complaint/petition."
Donastorg, however, says he doesn't really want to fight the executive branch in court; he simply wants it to enforce what he insists is "a good law."
Hollar's ruling, he said in a release issued Monday, "paves the way for further legal action. But all I want is a commitment from the executive branch regarding their intentions to set aside 10 percent of all tax revenues each month for the sole purpose of paying refunds. If they do this, we will never get too far behind."
In nearly identical letters dated June 30, Donastorg said virtually the same thing to Internal Revenue Bureau director Louis Willis and Finance Commissioner Bernice Turnbull. "In 1998, when thousands of Virgin Islanders were years behind on their refund checks, I fought to enforce the set-aside provision and to increase it from 4.5 to 10 percent in order to ensure that the government was able to meet its obligation to taxpayers," he wrote.
"Unfortunately, refunds continued to go unpaid, and the government's financial officers refused to comply with the 10 per cent set-aside provision."
He asked both financial officers for "a written and public commitment as to your agency's intention to uphold this important law, as well as a status report in regard to the payment of refunds."
According to another member of Gov. Charles W. Turnbull's financial team, the territory currently owes more than $50 million in income-tax refunds. Nathan Simmonds, director of the Office of Fiscal and Economic Recovery Implementation within the Office of the Governor, cited that figure on June 26 in testimony before the Senate Finance Committee (which Donastorg chairs) concerning the governor's bid to borrow another $235 million on the bond market.
Simmonds told the committee that in order to be able to make payroll in June, the administration deferred payment of the tax refunds and also payments to vendors.
Donastorg's point is that if the law were being followed, with the portion of revenues being regularly set aside, "IRB should have no problem in issuing refunds on a regular basis." In the event of temporary shortfalls, he said, money "should be made available monthly so that at least a portion of refunds could be paid."
When Donastorg filed his suit, the defendants were Gov. Roy Schneider, Finance Commissioner Juan Centeño, IRB director Joseph Aubain and OMB director Nellon Bowry. At that time, the V.I. Code provision at issue read as follows:
"The director of the Bureau of Internal Revenue shall maintain in the general ledger of the General Fund in the Treasury of the Virgin Islands an account to be designated the Reserve for Internal Revenue Tax Refunds. There shall be credited directly to such reserve account monthly not more than 4.5 percent of the receipts from internal revenue collections. The refunds or credits administratively granted under subsection (a) of this section shall be paid or credited by the director of the Bureau of Internal Revenue, without the necessity for annual appropriation and shall be chargeable to the reserve account."
This was an amended version of a 1964 statute specifying that the Finance commissioner should maintain the ledger and that the monthly set-aside should be "not more than 3 percent of the receipts from internal revenue collection." The changes were made because the Internal Revenue Bureau was created in 1980.
In 1999, Hollar granted Donastorg permission to amend the statute again, specifying that the monthly set-aside should be "not less than 10 percent of the receipts from income tax collections."
The executive branch tried four arguments in its efforts to get Hollar to throw the case out of court:
– First, it said Donastorg lacked standing to bring the suit, in that he failed to allege any injury which would affect him personally. Here, Hollar quoted from the landmark property tax-assessment case of Berne Corp. vs. the V.I. government: "If there has been a violation or evasion of the law … damage is presumed to all taxpayers. The object of the suit is to prevent the violation of the law."
– Second, it said the provision of law was vague and ambiguous and thus "void and unenforceable." Hollar held that the statute "can be interpreted in such a manner as to avoid vagueness and ambiguity" and thus "is neither void nor unenforceable."
– Third, it moved to dismiss Donastorg's petition for a writ of mandamus — an order from the court to the administration to enforce the law — on grounds that the IRB director lacks authority to do what the statute dictates and that the duties specified are powers vested solely with the Finance commissioner.
Hollar noted that the 1980 law creating the IRB specified that the director, in addition to assigned duties, "shall perform such other duties as may be assigned by law." And, she wrote, "The Legislature is clear in its intent for the Bureau of Internal Revenue to have control over the collection of income tax revenue."
– Fourth, it sought to have its motion to dismiss the petition for mandamus converted into a motion for summary judgment. Hollar said that this was not an option, because none of the materials offered by the parties qualify as "matters outside the pleadings."
Hollar noted in her opinion that the issue before the court was "not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claim."
She concluded that "the plaintiff has the right to seek mandamus relief against the defendants," with certain restrictions, "if the plaintiff can prove by the preponderance of the evidence that the defendants have failed to perform their statutory, ministerial duties."
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