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Feds Release $165 Million in V.I. Rum Taxes — But It's All Spoken For

U.S. Interior Assistant Secretary for Insular Areas Esther Kia’aina approved payment of $165 million to the V.I. territory for anticipated Fiscal Year 2015 rum excise tax collections, according to Kia’aina’s office. While good news, the money was anticipated and does not change the territory’s fiscal situation. Most of the funding goes to capital bond debt service, and roughly $20.5 million will contribute to the government’s operating budget for FY15, according to government budget documents.

Longstanding federal legislation encourages the territory to offer tax breaks in exchange for rum companies to set up here. At the same time, the federal government collects $13.50 in excise tax for every proof gallon of alcohol imported into the United States. By law, it returns at least $10.50 per proof gallon to the Virgin Islands and Puerto Rico, in accordance with the level of importation. Another $2.75 per gallon — bringing the rate of cover-over to $13.25 per gallon — must be approved by Congress every two years in tax extender legislation that includes a wide array of temporary tax provisions.

The V.I. government submits its advance estimate of the rum excise tax to the U.S. Department of the Interior’s Office of Insular Affairs on an annual basis so that payment can be made in September of each fiscal year, according to the Office of Insular Affairs.

"Taking the steps necessary to provide these funds to the local government in a timely manner represents the federal government’s commitment to the people of the U.S. Virgin Islands,” Kia’aina said in the statement.

The Office of Insular Affairs accepted the governor’s estimate of the 2015 collections amount of $166.95 million, which was based on a per proof gallon rate of $10.50. The territory owed an adjustment payment of $1.7 million from a previous advance payment that was deducted from the 2015 estimate.

The statement says the Office of Insular Affairs received the funds and final documents necessary to authorize the payment this month, and plans to process the payment without delay.

At the outset of budget hearings in June, Management and Budget Director Debra Gottlieb said rum revenues were projected to contribute $20.5 million to the government’s annual budget for FY15.

"The reduction as a contribution to the General Fund is derived from a substantial projected decrease in rum production by Cruzan Rum,” Gottlieb said.

That figure assumed the cover-over rate would be $13.25 instead of $10.50. But total tax revenues were somewhat higher than projected too, lessening the impact of the lower cover-over rate.

Budget documents submitted in June estimated $161.5 million in gross rum excise tax revenue to the territory. Those documents also show rum excise tax revenues contributing $106.2 million to the Internal Revenue Matching Fund, with $82.8 million devoted to debt service, for numerous capital bonds secured by those funds. It also has $23.5 million in contributions to other funds. The upshot is, the money is greatly needed and already spent.

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