Oct. 12, 2004 No one doubts financial fallout stemming from recent legislation passed by the U.S. Congress is inevitable. The amendment added to the American Jobs Creation Act of 2004, and touted on the mainland as a move to close tax loopholes will, by all accounts, deal a stunning blow to the territory's Economic Development Commission tax incentive program. (See "Virgin Islanders Coming to Grips With New EDC Rules" ). How much and how soon are the only unknowns.
One of the first indications of the fallout came Tuesday when two public hearings, one on St. Thomas and one on St. Croix, slated for Thursday and Friday to review eight applications for benefits, were postponed.
Nadine T. Marchena, Economic Development Authority assistant chief executive officer, said Tuesday night, "The board wants to get additional information" relative to the new legislation. Once the board receives that information, Marchena said, the hearings will "go forward."
Marchena was quick to say that at least some of the potential beneficiaries "want to go forward."
Six of the eight applicants are designated service businesses. Previous EDC law held different guidelines relative to source or effectively connected income for designated service businesses.
Residency and source income were the two issues redefined by the recently passed bill and its amendments.
Also on Tuesday Gov. Charles W. Turnbull and Lt. Gov. Vargrave Richards met with economists from PricewaterhouseCoopers LLP, according to a Government House release. Pricewaterhouse has been retained to produce a financial impact analysis post Congressional legislation. Pricewaterhouse had already been working on a study on the overall impact of the EDC program, when the damaging legislation turned up on the radar early last week.
Along with the analysis, the release said Pricewaterhouse will also "analyze the 1998 Tax Reform Act, which provides the legal foundation of the current EDC program."
Though the new legislation has not yet been signed by the president, there is little doubt that it will be signed most likely this week. Once signed, the law relative to source income changes immediately. New 183-day residency requirements take place Jan. 1, 2005.
Peter Hiebert, Washington counsel for the V.I. government, said last week one positive thing about the swiftness of the change relative to source income is that local EDC beneficiaries who may be responsible to pay full taxes on some of their income under the new law will pay those taxes into the local treasury in the last few months of this tax year.
But that doesn't change the dire implications of the legislative changes.
"The impact of changes projected as outlined in the Conference Report will unfortunately have serious financial consequences for the territory," the release quoted Gov. Charles W. Turnbull as saying Tuesday.
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