District Court Judge Robert Molloy ruled Friday that the VI Internal Revenue Bureau had proven there was a system for collecting excise duties from VI manufacturers. (File photo from US District Court)
Two years after a federal court prevented the Virgin Islands government from collecting taxes on manufactured goods moving through the area, a federal judge said Friday a tax payment of $ 27 cleared the way for that order to be lifted.
District Court Judge Robert Molloy said the VI Internal Revenue Bureau could demonstrate that it sets and collects taxes for local manufacturers. That was enough to uphold a 3rd Circuit U.S. Court of Appeals decision in the Reefco Services, Inc. case v. The Virgin Islands government, Molloy said. Reefco, a local manufacturer of cooling systems for boats, sued the government in 2014 after parts they shipped to build those systems were confiscated at the shipping dock and taxed.
Following the then District Court ruling, Curtis Gomez ruled that the local government had violated the U.S. Constitution’s trade clause by confiscating Reefco’s manufacturing parts and demanding payment of excise taxes. Gomez’s decision was then challenged by a jury of appellate judges. This was followed in November 2018 by a federal injunction that stopped collecting excise duties until the government could prove that it taxed importers and exporters alike.
On Friday – four days after a hearing in the St. Thomas District Court – Molloy said the burden of proof had been removed when an IRB official presented a $ 27 tax payment after January 1, the day of the court it had received from a local manufacturer allowed the tax authorities to resume the assessment and collection of excise duties, but only for manufacturers based in VI.
“Thus, the mandate of the Third Electric Circuit is clear: this court must overturn this injunction” after it has received evidence that the GVI does indeed impose an excise duty on local manufacturers, “wrote Molloy in its decision.” When examining the in In evidence submitted to the evidence hearing of March 9, 2021, the Court must find that the GVI did indeed impose an excise duty on local manufacturers and levied approximately $ 27 of that tax. It remains to be seen whether this newly introduced honor system leads to excise duty collection in any way which complies with the principles of the trade clause, ”said the judge.
About 50 local manufacturers operate in the US Virgin Islands. Most are small businesses, but three – Gold Coast Yachts, Diageo USVI, and United Electronic Industries Services LLC are considered progressive manufacturers according to the VI Economic Development Authority.
Diageo, who makes Captain Morgan Rum, celebrated its 10th anniversary in the Virgin Islands in December. Sales of rum in the Virgin Islands were strong at 11.9 million cases through 2017, but Diageo rum sales declined in 2019.
The government house welcomed Molloy’s December 10th decision and partially lifted the temporary injunction on the excise tax. The most recent ruling, which completely overturned the injunction, is also praised.
“It’s good news for the area. This is something we have been looking for. We have a considerable amount of work to do to rectify this, “said Richard Motta, Jr., Director of Communications for the House of Government.” We look forward to collecting the proceeds and using them to fund programs and services that benefit the people benefit in the Virgin Islands. ”
Motta said the IRB could generate up to $ 40 million in revenue annually as import / export tax collection became available again.
