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Obama Signs Rum Tax Extension

Ensuring the territory will get millions of dollars it has already budgeted, President Barack Obama signed tax extender legislation setting the rate at which the federal government covers over rum tax revenues to the territory on Friday, according to the White House. The legislation temporarily extends several expired tax provisions through the end of 2014, affecting the current year’s revenues.

The rum cover over is a small part of the federal legislation. Most of its provisions have little to do with the territory. But the rum tax revenues underlie most of the government’s capital debt, add to the government’s coffers and heavily subsidize the territory’s rum manufacturers.

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.

Without that recurring legislation, the rate would drop to $10.50 per proof gallon, taking millions away from the territorial treasury.

The news, while extremely good, maintains the status quo and does not increase the territory’s available funding, because in February, the federal government advanced us projected revenues for Fiscal Year 2014 based upon the higher rate. The territory received roughly $257 million in advance rum tax payments in total for FY14. (See Feds Release Full Advance Rum Payment, Reducing V.I. Deficit)

In September, the Department of the Interior’s Office of Insular Affairs accepted the governor’s estimate of the 2015 collections amount of $166.95 million, which was based on the lower per proof gallon rate of $10.50. As a result, if the tax extender legislation is approved yet again in the next Congressional cycle, it will mean more money for the territory for next year’s budget.

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