Nov. 19, 2003 – A comment made by Senate President David Jones on Wednesday about plans by the majority to impose a tax on petroleum products at the wholesale level has fueled yet another controversy on the rocky road to adoption of the government's fiscal year 2004 budget.
The tax is contained in the majority's long and wide-ranging 2004 Omnibus Act, which had been scheduled for consideration Wednesday by the Rules Committee, which ended up not meeting and now is scheduled to convene at a time to be announced on Thursday.
At a press conference on Wednesday morning, Jones stated that majority senators had spoken with officials at the Hovensa refinery, which would absorb the brunt of the costs, and that "Hovensa has no problem with it."
No so, Alexander A. Moorhead, Hovensa vice president for government affairs and community relations, said in a letter he fired off Wednesday to Sen. Carlton Dowe. In fact, Moorhead said, the company has a number of problems with the legislation.
The bottom line, he said, is that if the measure is enacted, "Hovensa intends to pass the tax on to its customers." And if the Legislature incorporates a provision prohibiting those liable for the tax from passing it on to their customers, "Hovensa would be forced to cease the local sales of petroleum products."
The motor fuel distributors for St. Thomas and St. John, Texaco Caribbean, Esso Virgin Islands and Domino Oil, get their supplies from Hovensa and from sources in Puerto Rico. The independent retailers on St. Croix rely entirely on Hovensa.
The bill sets the wholesale petroleum tax per barrel of crude oil at $6 for oil priced up to $16 per barrel, $5 for oil priced $16.01-$24, $4 for oil priced $24.01-$28, and $3 for oil priced over $28. It states that the index price per barrel is to be based on market quotes in two of several world markets.
It is Hovensa's position, Moorhead said, that under the 1965 agreement between the V.I. government and Hess Oil Virgin Islands Corp. as amended, the refinery would be exempt from the proposed tax "with respect to the consumption, acquisition and transfer" of crude oil within the territory, but would be liable with respect to the sale of same.
Moorhead said Hovensa's exemptions do not apply to gross receipts and excise taxes on sales of fuel not for export, with certain exceptions, such as sales to the Water and Power Authority. He said the majority's proposed tariff appears to be an excise tax, and thus Hovensa would be subject to it "on its local sales" of gasoline, diesel fuel, jet fuel and propane.
He pointed out that the bill provides exemption for fuels used for air and maritime transportation "between the Virgin Islands and other places." But Hovensa will not be able to determine such use of the fuel it sells, he said, and so "will be forced to pay the petroleum tax on all local sales of motor fuels."
The bill makes sales to the V.I. government and its instrumentalities exempt from the tax.
Moorhead noted that the existing fuel tax statute exempts the sale of fuel for use in vehicles "not operating or intended for operation upon the public highways" and "for industrial or other purposes not connected with the fueling of motor vehicles." And, he said, the existing law provides for such purchasers to obtain tax-exemption certificates allowing for sales by suppliers to take place on a tax-free basis.
The Omnibus Act provision neither exempts such sales not provides for such tax-exemption certificates, he said.
Jones said at the morning press conference that the majority was asking Hovensa "to make a contribution to this anemic government." He also said that any attempt by those liable for the tax to pass it on to consumers would be brought up short. However, Moorhead told Dowe that Hovensa has found no provision in the proposed statue that would prohibit it from passing the tax on to customers.
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