April 24, 2005 – Anna Hector, president of the St. Croix Chamber of Commerce, has two ideas about how to keep the V.I. Economic Development Commission program healthy.
First, she says recent changes to the program by federal legislation and pursuant regulation must be kept in the public spotlight. Secondly, she says the V.I. legislature needs to define residency, not leave it up to the federal government.
She says last year when discussions were going on in Washington, D.C., about the Jobs Creation Act that changed the EDC program Sen. Ted Kennedy asked, "Where is your legislation?"
She adds that in July residents presented legislative ideas to V.I. senators about defining residency. She says, "And you know what we have done since then? Absolutely nothing."
She hopes that is going to change. She has talked to Sens. Terrence "Positive" Nelson and Neville James. She says they would be willing to introduce residency legislation to the full Senate in the next session if they have something tangible with which to work.
Ben Riviera, the chamber's executive director also has ideas about helping the EDC "program expand, not shrink."
He wants to call all the stakeholders together in a meeting while the Treasury Department is still taking comments on the EDC regulations released early in April. (See "EDC Regulations Are Out, Effects Being Determined").
He said he plans to get people who have been involved in the process of writing regulations for the Treasury Department to attend the meeting, "We need to learn how these things play out, so we can be in a position to help ourselves."
He has not set a date for the meeting, but noted the deadline for comments on the new regulations is July 11. He said for its purposes the Chamber would like to have a plan formulated by June 30.
In the meantime, the Chamber asked for an analysis of the proposed EDC regulations from the New York firm of Marcus, Andreozzi and Fickess.
The analysis was sent to members of the Chamber of Commerce Board in mid April.
William Bradshaw, who has been urging legislators to define residency, says this analysis is the best he has seen so far.
The following in an excerpt about residency:
An individual generally will be considered a bona fide resident of a possession only if he or she satisfies all three of the following conditions:
(1) Physically present in the USVI for 183 days or more ("physical presence test"),
(2) No tax home outside the USVI, ("tax home test"), and
(3) No closer connection to the U.S. or a foreign country than to the USVI ("closer connection test").
Physical Presence Test. The statute also provides IRS and Treasury authority to create exceptions, and now the Regs list four ways to meet the physical presence test; the 183-day test in the statute, plus three alternatives:
(i) Physically present in the USVI for 183 days or more (per statute),
(ii) Spend no more than 90 days in the U.S. during the taxable year,
(iii) Spend more days in the USVI than in the U.S., and have no earned income (as defined in sec. 1.911-3(b)) in the U.S. during the taxable year. Under this two-tiered provision, retirees who spend several months each year stateside for vacation, for medical treatment, or to visit relatives, and some time traveling in foreign countries, may satisfy the physical presence test under this alternative.
(iv) No permanent connection to the U.S. Three examples of a permanent connection to the U.S. include a permanent home in the U.S. (per Reg. 301.7701(b)-2(d)(2)), a spouse or dependent with a principal place of abode in the U.S., and current registration to vote within the U.S. The Regs state that an individual who lives in the USVI but travels extensively in the U.S. for business reasons or to receive medical treatment may satisfy the physical presence test under this alternative.
Tax Home Test. The Regs state that for meeting the tax home test, an individual’s tax home is determined under the principles of sec. 911(d)(3) without regard to the second sentence thereof. Thus, an individual’s tax home is considered to be located at (1) the individual’s regular or principal (if more than one regular) place of business. If the individual has no regular or principal place of business because of the nature of the business, or because the individual is not engaged in carrying on any trade or business within the meaning of sec. 162(a), then the individual’s tax home is the individual’s regular place of abode in a real and substantial sense.
Closer Connection Test. The Regs state that for meeting the closer connection test, an individual meets the requirements if such individual did not have a closer connection to the U.S. or a foreign country than to the USVI. In evaluating the facts, another possession is not considered a foreign country, and the principles of sec. 7701(b)(3)(B)(ii) and 301.7701(b)-2(d) apply.
As is usual for documents of this type, there is a disclaimer saying that is to be used for general information only and "should not be relied upon as authority for analyzing one's personal tax situation or tax return consequences, without further specific factual analysis of the circumstances surrounding their residency and income producing activities."
The document is five pages long and also addresses the issue of what qualifies as source income for EDC companies.
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