Tax increases on tobacco, alcoholic drinks and sodas; fees on timeshares; and a floor of $360 for exemptions on property tax all were voted out of committee Thursday and to the full Senate. The measures are amended versions of proposals from Gov. Kenneth Mapp that are part of a five-year plan to reduce the territorial government’s structural deficits of more than $100 million per year.
They are intended to both help the government raise funds to keep government agencies open amid ongoing budget shortfalls and reassure markets that have downgraded V.I. debt and are not lending to the territory.
Finance Commissioner Valdamier Collens testified the amended versions of the taxes should generate about $25.5 million per year for the government’s General Fund – about $3 million less than the governor’s original versions.
On Thursday, business leaders again vociferously attacked the tax increases, arguing they would hurt the time share industry; hurt sellers of tobacco, liquor, beer and sodas; hurt veterans; and discourage tourism.
Some also expressed frustration at the prospect the Senate may pass the measures despite their objections.
“I believe the government is trying to save face by having these meetings quickly and pushing these taxes through,” said Patrick Kralik, president of the Christiansted Retailers Association and owner of Balter restaurant.
The Senate discussed some of the measures in December, before voting to hold them to get input from the business community. It heard these measures Jan. 31 in the Finance Committee, where members of the business community vehemently opposed them, and the committee amended them to make the increases less severe.
Then with objections raised that the Jan. 31 hearing did not have sufficient advance notice, the Finance Committee held another all-day hearing Feb. 16, where the territory’s two Chambers of Commerce, time share lobbyists and others again vigorously opposed them. Senators also attended a town hall with members of the business community.
The Senate routinely approves legislation that is proposed during session and can vote to waive its own rules, so there was no legal requirement to hold another hearing.
Several senators said they did not believe the size of the tax increases warranted the level of opposition from the business community. Sen. Nereida “Nellie” Rivera-O’Reilly said an amendment was coming that would change the alcohol taxes to per-case fees that would amount to 25 cents per beer. She said she did not think it likely that 25 cents per beer would seriously discourage drinkers or potential visitors.
Kralik, along with St. Thomas/St. John Chamber of Commerce President Sebastiano Paiewonsky-Cassinelli and St. Croix Chamber of Commerce President Kimberly McCollum, said the business community had proposed serious alternatives that could generate more revenue than the tax proposals.
McCollum suggested stronger enforcement of parking and traffic violations could generate some of the funds the government needs, pointing out that V.I. parking tickets are rarely turned in by police, so drivers do not have to pay them.
“I will not review my calculations now, nor my methodology, but for the record here today, my conservative calculations on a single traffic violation with a $50 fine equates to $3 million in annual revenue,” McCollum said.
Traffic fine revenues in states suggests that number may not be far off. For example, Virginia, with 8.32 million residents, issued $238 million in traffic tickets in 2010. Controlling for the fact that Virginia has 83 times the USVI population, that would suggest the USVI would get about $2.87 million, which is close to McCollum’s estimate. However, that is much less than the $25.5 million the measures would likely generate and very small compared to the $130 million structural deficit.
On the other hand, figures vary widely by state. The state of Hawaii, with 1.4 million residents, reported income from all parking fees, fines, meters and moving traffic violations of $3.76 million for 2015, or, controlling for the larger population, suggesting the USVI would make about $269,000 – about one-tenth as much, per person, as Virginia.
McCollum also said that people may argue that once word gets out, people would violate the law less, reducing that figure, but that if so, then it must also be true that people will stop drinking if taxes on liquor are increased, saying “you are also negating your reasoning for why your sin taxes will be a success.”
Another proposal was to sell off government-owned land. Assuming there is a market for the land, that would provide a one-time windfall, followed by some increase in ongoing property taxes, so long as the property is not sold to companies receiving V.I. tax breaks through the Economic Development Authority, UVIRTPark or other vehicle.
Rivera-O’Reilly said several major Caribbean ports, including the Dominican Republic, Bahamas and Jamaica, have higher excise taxes than the Virgin Islands is proposing, “yet somehow they are all thriving despite higher excise taxes.”
“So the argument that the taxes that we are considering are somehow going to render the Virgin Islands an undesirable destination, I’m sorry but I cannot buy that,” she said.
Robert Clements, vice president for regulatory affairs for the American Resort Development Assoc., said the timeshare fee will hurt the industry.
“We recognize that the Virgin Islands is facing dramatic fiscal problems … but there is a point where impact fees have a very negative impact on demand,” Clements said. He said timeshare owners already pay the highest property tax rate in the Virgin Islands, so paying the proposed $25 per night in use fee would be “double taxation” as well as an unfair burden.
All income is taxed multiple times. For instance, you pay income tax, then pay fuel tax when you buy gas and pay line fees on your cell phone, pay tobacco taxes when you buy cigarettes and so forth.
Sen. Neville James asked Clements about his argument concerning tax rates.
“You are saying they pay the highest tax rates in the Virgin Islands. But shouldn’t we be comparing to other jurisdictions?” James asked.
“No, I am talking about the property tax that time share owners pay.”
The territory’s real property tax rates for homeowners are lower than most jurisdictions.
V.I. homeowners pay 0.37 percent property tax before exemptions. With the new bill, exemptions would stop at $360 but taxpayers would pay less if their tax would be less, based on value, without exemptions. According to the Tax Foundation, 49 of the 50 states have higher homeowner property tax rates, with only Hawaii, at 0.28 percent, coming in lower. It was more difficult to quickly determine how timeshares are taxed in each state. The V.I. rate for timeshare units is similar to Hawaii, which charges 1.43 percent.
Some jurisdictions charge timeshare owners hotel occupancy fees. Virginia Beach charges additional fees of $2 per night plus 8 percent occupancy tax. Hawaii charges a transient occupancy tax on timeshares of 9.25 percent per night.
James said the timeshare owners should be happy because for the last 16 years, they were meant to pay 10.5 percent, while the new fee would produce a lower amount. The average nightly cost for a room on St. Thomas is $325 and if hotel tax were applied to time shares, the average time share unit would be paying $35.73, James said. If calculated as a percentage of the typical price of rental, the new fee would come to 7.1 percent – lower than the 10.5 percent in current law.
But timeshare owners have not been paying the timeshare fee for the last 16 years because the language was flawed, so it had no effect, James said.
In a previous hearing, Sen. Alicia “Chucky” Hansen said she sponsored the timeshare fee 16 years ago.
The territory is relatively generous to veterans, with a $650 credit for anyone who served at any time in the armed forces, whether in peace or war, so long as they were not dishonorably discharged. According to data from the veterans advocacy group Veterans United, most states do not have exemptions for all veterans, but many have some level of exemptions for those who are completely disabled and a handful have exemptions for veterans who served during wartime. Only California has a full exemption for veterans, whether they served in war or peace, but only if the property is valued at less than $100,000, or if their income is low, up to $150,000.
Opponents of the two bills in question repeatedly said they did not feel they were being listened to. Senators, on the other hand, repeatedly said they were listening and had crafted multiple amendments to try to address their concerns.
Several government officials testified the increases were crucial to begin to bring a little more stability to the government’s revenues and reassure credit markets.
“This is our last time around and we must recognize that if we don’t do it, then somebody will do it for us,” Tax Assessor Ira Mills said.
Before sending the bills on, senators added several amendments aimed at measuring the impact of the tax increases so they can be reconsidered in the future and at imposing government austerity. Along with the previously mentioned changes in how the excise taxes are calculated, amendments Thursday:
- prohibited the use of nonessential government vehicles after the end of the work day;
- mandated a 30 percent reduction in vehicle use;
- requiring government cell phones be returned within 30 days;
- mandating that agencies are to coordinate wth entities that have teleconferencing to meet by teleconference instead of paying for members to travel between islands;
- prohibit government officials from staying overnight in hotels on holidays;
- limiting government fuel use to 10 gallons every two days and mandating users of vehicles to maintain fuel logs and turn them over to Property and Procurement for compilation.
Another set of amendments mandated the Bureau of Economic Research to analyze the impact of the legislation and produce quarterly reports to the Legislature.
A measure from Rivera-O’Reilly would prohibit EDC tax break beneficiaries from converting property taxes to timeshares and require that they lose their tax breaks if they do.
Voting in favor of the excise tax bill and its amendments were: Sanes Sens. Marvin Blyden, Jean Forde, Myron Jackson and Novelle Francis. Sens. Positive Nelson and Janette Millin Young voted no.
Voting in favor of the real property tax floor of $360 were Forde, Jackson, Francis and Sanes. Nelson and Millin Young voted no. Blyden abstained.