June 29, 2005 — Every aspect of the economy of the Virgin Islands is strongly influenced by the Organic Act and other federal laws, particularly as they relate to our ability to grant tax exemptions in order to attract business to the Virgin Islands.
Without tax exemptions, neither HOVENSA, Cruzan Rum, nor any of the tenants in the St. Croix Industrial Park, would be here. St. Thomas is the shopping capital of the Caribbean because of the tax exemptions granted by the 14th Legislature to 28 categories of tourism-related products.
The great danger is that just as the ability to grant these exemptions are based on the 1954 Revised Organic Act and other federal laws passed by Congress, a subsequent Act of Congress can take away that ability.
A few years ago, Congress created Foreign Sales Corporations (FSCs) in order to boost U.S. exports. Many companies then established offices in the Virgin islands and paid our government millions of dollars in taxes. Under pressure from the World Trade Organization, Congress repealed the law and that stream of revenue dried up.
More recently, Congress created another class of corporations called Economic Development Corporations (EDCs), which were again based on the granting of tax exemptions. For the last two years, the EDC companies paid over a hundred million dollars per year into our treasury. For various reasons, Congress changed the law, and the Department of the Treasury is in the process of changing the regulations. Although it is still a work in progress, the end result could well be the loss of at least half of the revenue.
The granting or withholding of tax exemptions affects every aspect of our economy, either directly or indirectly. Our ability to grant those exemptions is created and controlled by the 1954 Revised Organic Act and other laws passed by the Congress of the United States.
Editor's note: Bent Lawaetz is a former president of the VI legislature, and a current member of the West Indian Co. Ltd. board.
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