Dear Source:
American tourists used to flock to the Virgin Islands to take advantage of the duty-free savings on liquor. The territory enjoys an advantage over other destinations in that U.S. residents are allowed to take home one gallon of liquor plus one product made in the Virgin Islands, compared to one liter if the liquor is purchased in a foreign destination. However, this advantage is useless since U.S. Customs does not enforce the rule and in most cases cruise ship passengers are buying the bulk of their liquor in St. Maarten, aboard the ships, or at the expanded duty-free stores in Puerto Rico. Sales of alcohol to tourists leaving the islands have dropped big time.
As a longtime businessman on St. Thomas, I cite a specific example with the SS Norway. The liner can carry approximately 1,200 passengers. It used to be that at least 500 six-bottle boxes of liquor were delivered to the ship each week by the various retail merchants. Now, the businesses are lucky if they can together deliver 100 boxes to that same ship. Or take Carnival Cruise Lines: Liquor delivery used to average 150 to 200 boxes on the old, smaller Carnival ships that carried 500 to 800 passengers. Now we see these megaships with 2,000 to 3,000 passengers, and we find that fewer than 100 boxes of liquor are being delivered to them.
So why the big drop? Once you factor in the 4 percent gross receipts tax that retailers pay on their sales, another 4 percent gross receipts tax that the wholesalers pay, the 6 percent federal customs duty to import foreign-made liquor and the excise taxes paid to the V.I. Internal Revenue Bureau, retailers are put at a distinct disadvantage in pricing their goods for sale. Not to mention the fact that onboard shopping and expanded stores at the cruise ship ports in Puerto Rico are beating us to the punch. We face competition from new and expanding markets that did not exist ten years ago.
Take a liter of Absolut Vodka, which retails for $5.99 in St. Maarten. The retail price on St. Thomas is about $8.99. When passengers see that we have a price $3 above what their ship or St. Maarten is offering, they get the perception that prices for everything in St. Thomas are too high. In the end they buy nothing here.
Recently, big distributors such as Bellows International and West Indies Corp. have started supplementing their product lines to make up for declining liquor and perfume sales by selling hair products and dog food. This is a clear indication that we have a problem in the liquor industry.
We retailers now face a situation where our biggest competition is the very same cruise lines that bring the people in. While leaders in government are so overwhelmed with other pressing problems, this industry looks to disappear the way of the charter boat industry. A recent proposal in the Legislature to increase taxes on liquor and perfumes could be the nail in the coffin for this already struggling industry.
I suggest that a possible solution might be to seek an elimination of the 6 percent federal duty on foreign liquor items. At a time when the federal government is experiencing a surplus it doesn't know how to spend, this could be just the catalyst we need to boost sales in the liquor industry. Increased sales would lead to an increase in gross receipt taxes and an increase in employment in the industry.
Wines are big on the mainland, and we need to make changes so that we can sell imported wines here at competitive prices. Explore the possibilities of establishing a wine industry on St. Croix. We have the climate and the land, and our delegate to Congress can facilitate a visit by leaders in the wine industry from California, New York and Canada to assist in assessing the possibility of establishing a wine industry. This is a new market that can and will provide a new source of revenue to government and a new source of employment for Virgin Islanders.
If our elected leaders are keen on improving the economy, they must do it by expanding the private sector, which in turn will increases the tax base. Increased taxes on liquor will only lead to a decline in sales, which will trigger a drop in employment and taxes revenues.
Along with the others in the wholesale and retail liquor industries, I can and will make myself available to discuss this matter with our senators.
Vinnie Mohanani
St. Thomas
Editor's note: Vinnie Mohanani is a longtime Main Street businessman on St. Thomas. This letter is similar to one he addressed to Sen. Norman Jn Baptiste in response to the senator's proposal to increase excise taxes on liquor and other imported merchandise.
