The U.S. Treasury proposed relaxing its 183-day annual residency test for V.I. Economic Development Commission tax breaks, which should attract more businesses to the program and more investment to the territory, acting Economic Development Authority Executive Director Wayne Biggs told the Senate on Monday.
When Congress directed the IRS to require 183 days of residency with an amendment attached to the American Jobs Creation Act of 2004, this reduced the number of financial companies seeking EDC tax breaks for a number of years as V.I. officials negotiated with the Internal Revenue Service to clarify and ease the regulations it put in place.
But Biggs told senators during Monday’s budget hearing, "We just got word back that the proposed new rules will give a 30-day travel exemption, which will effectively reduce the requirement from 183 days to 153 days. And we will be working to reduce that further," he said.
In a separate statement, Gov. Kenneth Mapp hailed the news. According to Mapp, the current residency rules pose a serious obstacle for a number of V.I. taxpayers, especially for participants in the territory’s EDC program, which requires program beneficiaries to service clients outside of the Virgin Islands and who therefore must travel extensively.
“Since Treasury first imposed the 183 days test for V.I. residency following Congressional enactment of the American Jobs Creation Act of 2004, the territory has lost scores of businesses and hundreds of millions of dollars of tax revenue because the rules are too onerous for our residents who must travel frequently to stay in business, and because they simply do not recognize the realities of living on a small geographically removed island,” Mapp said.
“This could be a real boost to the territory’s economy,” Mapp said. “It will help us retain existing businesses which have had trouble meeting the current rules. It will also help us attract new businesses in the future, particularly those in the technology and financial service sectors,” he said.
According to Biggs, the program was already rebounding, partly due to previous clarifications of the rules, and the new change will help if the Treasury Department implements it.
Through July of this year, EDC received 15 new applications for benefits. Of this total, 10 are in the financial and business management sector, while the others represent a broad range of business types including recreational and manufacturing companies. Seven existing beneficiaries submitted requests to either modify or extend their existing EDC certificates.
According to Biggs, if all 15 of the new applicants are approved, their presence could significantly impact the economy, spending more than $18 million on capital investments and creating 132 jobs.
During the same period, 28 EDC applicants appeared before the Economic Development Commission Board for consideration of benefits and 12 were approved.
"As a direct result of Act No. 7651, the board also considered 13 beneficiary requests for extensions of benefits of which 11 were approved," Biggs said. That act, passed in September of 2014, renames the program and allows EDC beneficiaries to be "entitled" to tax breaks for up to 30 years on St. Croix and 20 years on St. Thomas. [Act 7651]
There were 13 companies that activated their EDC certificates during this period, which had an immediate impact on the economy, Biggs told the Finance Committee.
EDA’s budget request of $4.8 million is in line with the governor’s recommendation and is 1 percent less than the Fiscal Year 2015 appropriation. “We are going to manage this reduction through cost efficient strategies that emphasize data analysis through the use of technology and as introduction of other cost saving measures,” Biggs said in his testimony.