Two tax professionals who have reviewed the government’s tentative 15-year contract with basketball superstar and Virgin Islands favorite son Tim Duncan warn it may not be the "win-win" deal that Gov. Charles Turnbull has dubbed it. Some parts appear unenforceable under U.S. tax laws, they say, and others seem unusually generous.
The deal calls for Duncan to make three commercials a year for V.I. tourism and pay his income taxes here on his NBA earnings in return for total tax breaks for his company, T.D. Enterprises.
Neither tax expert who reviewed the contract wished to be quoted by name. But both questioned whether it could pass muster with the U.S. Internal Revenue Service.
For one thing, it may be difficult for Duncan to establish V.I. residency in order to pay his taxes here, since he has to be outside the territory much of the year playing basketball.
For another, the experts say the territory can only give benefits to V.I. source income, not income from product endorsements.
Well aware of Duncan’s popularity, one expert said, "The agreement is very one-sided. It’s not (just) apple pie, it’s the whole pie."
The contract reportedly gives T.D. Enterprises more generous benefits than the Industrial Development Commission is allowed to give: 100 percent exemption from income tax, gross receipts tax, real property tax and excise taxes.
Even the investment income is sheltered; up to six shareholders would enjoy a 100 percent exemption on income taxes for any dividends from the company.
However, Turnbull pointed out in his transmittal letter that there is a cap on the tax benefits. They may not equal more than a multiple of the amount of personal income tax Duncan pays to the Virgin Islands. In the first year, that multiple is 1.5; in 2001-02, the multiple is 1.75 and for 2003-14, the multiple is 2. If the company tax benefit falls below the maximum allowable in any given year, Duncan may carry forward a credit.
Although discussions of the deal have suggested T.D. Enterprises will be basically a promotions company and possibly run sports bars, the agreement itself does not say what business the company will engage in. The only limitation on it is that it may not be involved in casino gambling or other gaming. It does not say who the shareholders are, nor does it specifically prevent Duncan from selling the company, although the benefits are clearly tied to him.
The contract also does not say what arm of the government is responsible for enforcing the terms of the agreement.
However, it does contain language designed to protect the integrity of the contract. It states:
"No independent agency, board or other instrumentality of the Government or any Government agency as the term is defined in Title 1, Chapter 15, Section 253(b) of the U.S. Virgin Islands Code will promulgate any rule, regulation, decision, determination, order or other assessment that will in any way negate, restrict, impair, offset, limit or otherwise affect the obligations of this Agreement or the tax benefits to be derived therefrom by T.D. Enterprises, Inc. Should any law of the United States or any decision of any court of the Territory of the Virgin Islands or of the United States have the effect of negating, restricting, impairing, offsetting or limiting the terms of this Agreement, to the extent permitted by law, subsequent legislation will be submitted by the Governor to the Legislature to reestablish and to reconfirm the terms of the Agreement."
Time is running out for the V.I. Legislature to give the contract more than a cursory look before giving it the expected seal of approval. It is supposed to become effective on Nov. 1.
An official copy reached Senate President Vargrave Richards’ office last week. His chief of staff, Lynelle Emanuel, said Friday that Richards had not yet decided what route the contract will follow to the floor of the Legislature.
