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As a Result of D.C. Meeting, EDC Group Has a Plan

Aug. 24, 2004 – The USVI Economic Alliance isn't waiting to see what the Internal Revenue Service will do next when it comes to the territory's Economic Development Commission rules. The association of EDC beneficiaries sent a delegation to Washington last week to seek help from U.S. Department of the Interior.
Benjamin Rivera Jr., alliance executive director and a former EDC company employee, said there has been "a black cloud hovering over" the territory's tax-benefits program ever since the IRS warned EDC companies on June 24 that they had to meet residency requirements. However, those residency requirements are not clearly spelled out.
Lt. Gov. Vargrave Richards said the territory needs clarification on the residency issue, as well as an interpretation of what constitutes source income. For example, what would be the IRS ruling "if the money is earned in New York, but the company is domiciled here," he said.
Interior Department and local government officials are working on a position paper to present to the IRS, Richards said. He said he has gone to Washington twice to meet with Interior Department personnel on the matter, and Gov. Charles W. Turnbull also made a visit.
Rivera declined to discuss details of the alliance lobbying plans but said that Interior's deputy assistant secretary, David Cohen, had given the delegation insight into how to proceed with the issue.
"We were very well received and believe that Interior heard our message loud and clear," Rivera said. "We now have a plan to move forward, and move forward quickly, to state the case to the Treasury Department."
He said the federal government failed for 20 years to set up rules for investment incentive programs such as those in the Virgin Islands. "People acted in good faith," he said.
Since the uncertainty about the EDC program surfaced, Rivers said, one St. Thomas firm, Consolidated National, has closed its doors. He said other beneficiary companies have lost business, including one that saw sales drop by 60 percent.
According to Rivera, attorneys for some EDC beneficiaries have recommended that they close and start paying their taxes on the mainland. "That's an important loss of revenue to the territory," he said.
Richards said the territory's revenues from the EDC program exceed $75 million a year, with the companies also making charitable donations of $25 million a year in the local community. On St. Croix alone, he said, the number of real estate transactions has risen by 150 percent in the last two years.
Another benefit, Richards said, is that the EDC beneficiaries have lured well-educated Virgin Islanders home to take jobs with the companies. "I know of 16 or so off the top of my head," he said.
Rivera said last week's Washington meeting was attended by Cohen and other Interior personnel; attorneys for the EDC and its member companies including Donald C. Alexander and Jack Howell; and himself. In addition, he said, personnel in the lieutenant governor's office participated via telephone conference call.
The alliance is a not-for-profit group organized to promote public awareness of EDC companies and issues, serve as an advocate group in matters of concern such as the residency issue, and work as a clearinghouse for local charities seeking donations from EDC firms. (For background on the IRS notice and the resulting concerns of the alliance, see "Business Group Taking IRS Concerns to D.C.".)

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