The Finance Committee approved a bill eliminating the territory’s customs duties on Thursday. The duties generate about $12 million per year but for more than a decade U.S. Customs and Border Protection has confiscated nearly all of it to pay for the cost of collecting them, so they do not go to the V.I. government’s available funds.
The Revised Organic Act, the federal law that defines the territory’s powers, gives the territory authority to charge up to 6 percent duties on goods brought into the territory.
For years, Customs and Border Protection collected the duties, taking a portion for its costs. But after the creation of the Department of Homeland Security in 2003, it began keeping nearly all the funds.
Former Gov. John deJongh Jr.’s administration negotiated and signed a memorandum of agreement in December 2014 that aimed to resolve the problem. Customs and Border Protection agreed to fund air passenger pre-departure clearance with federal funds and to otherwise limit reimbursements from local customs duties to only the specific costs of collecting those duties.
The agreement also calls for transparency in reporting of what funds are collected, what funds are retained and what, specifically, the retained funds are used for.
But according to V.I. officials, CBP has largely ignored the agreement almost since the moment it signed onto it. Since then, Customs has only remitted $1 million. It has kept more than 90 percent of the funds for 2015 and has not given over any of the 2016 funds to date, Finance Commissioner Valdamier Collens said Tuesday.
"The purpose of assessing the Virgin Islands’ customs duties is to provide funding to the Virgin Islands, not to fund U.S. Customs and Border Protection," Collens said. "And even though U.S. Customs and Border Protection engages in other federal activities in the Virgin Islands, some of which convey benefits to the Virgin Islands, those federal activities should be funded with federal funds – not from our local custom duties or any other locally derived funds," he said.
The St. Croix Chamber of Commerce opposed the change, saying in a written statement that "the federal government could easily refuse to fund these services and remove the convenience of local customs clearance."
Collens said those are federal responsibilities that are paid for with federal dollars in other jurisdictions.
Collens asked for a few changes to the bill Tuesday to let the government try to find a federal solution, whether in federal legislation or by working it out with CBP.
"A federal legislative solution that returns Virgin Islands customs duty revenue to the Virgin Islands would avoid the necessity of rescinding the customs duties. That would be an economically desirable outcome, and therefore remains worth pursuing during the period before the memorandum of agreement terminates," Collens said.
The committee held the bill Tuesday to draft amendments. On Thursday, the committee amended the measure to make it say simply that all goods can enter the territory "free of customs duties."
Senators also changed the bill to make it take effect only on the formal termination of the territory’s agreement with CBP and only if no federal legislation has been enacted that would let the USVI collect the duties directly or limit the amount CBP can keep to no more than 20 percent of what it collects.
Another amendment directs the Bureau of Internal Revenue to propose changes to the territory’s excise taxes within 90 days of enactment of the law, as an alternative revenue source to replace the customs duties.
Voting to send the amended version of the bill out of committee were: Sens. Kurt Vialet, Marvin Blyden, Sammuel Sanes, Positive Nelson and Clifford Graham. Sens. Myron Jackson and Tregenza Roach were absent.