A major grocery warehouse center is suing the Bureau of Internal Revenue over the practice of assessing excise taxes on goods imported from the U.S. mainland. The civil lawsuit filed by PriceSmart Inc. bears similarities to another case involving a Virgin Islands-based business that was recently heard before a federal appeals court.
In fact, the lawyer representing the plaintiff in the PriceSmart case is the same lawyer who took part in oral arguments in the appeal of Reefco Services, Inc., vs. Government of the Virgin Islands, et. al. on Dec. 10. But according to court documents the PriceSmart case takes the challenge against the V.I. tax code one step further.
Plaintiffs in both cases say they were made to pay excise taxes on goods that are considered exempt by law. Both say the method the government uses to assess the tax violates the U.S. Constitution.
But in a Dec. 22 filing on behalf of PriceSmart, attorney Taylor Strickland challenged a second tax – the container tax – as a second and thinly veiled excise tax which should also be struck down.
Both forms of taxation violate the Commerce Clause found in Article 1 of the Constitution, Strickland said. The clause allows Congress to set the terms of trade between the U.S. and foreign nations, and also the terms for interstate commerce.
For that reason, the plaintiff in the PriceSmart case is asking the court to declare the territorial container tax unconstitutional and to stop the government from assessing that tax against all items brought into the territory in that manner.
If the court were to rule in favor of PriceSmart – referred to in the Dec. 22 lawsuit as PSMT, LLC. – the result could be significant. Virtually all goods coming into the Virgin Islands arrive in shipping containers by way of deep sea transport.
According to a 2016 report prepared by the Colorado-based Abt Associates, wholesale and retail trade makes up nine percent of the gross domestic product of the Virgin Islands. The tax bureau assesses a fee of either $50 or $100 on every shipping container brought into the territory.
“PSMT is a regular importer of containers of goods, originating both from the United States and foreign countries, that are subject to the territorial container tax. The goods include both those goods that are exempt from the excise tax, such as food and water,” court documents said.
From February 2016 through January 2019, PriceSmart officials say the V.I. government, through IRB, has collected more than $1.6 million in excise taxes and another $258,600 in container taxes. Additional documentation also showed how the company filed claims against the government to recover those sums.
The civil suit also points out that since 1984 the court has held that the territory’s tax system discriminates against those bringing goods into the Virgin Islands and fails to apply excise taxes on local manufacturers importing raw materials.
In October 2018 District Court Judge Curtis Gomez issued a judgement in the Reefco case, preventing further assessment of excise taxes until the government fixes long standing violations in the tax code. The government quickly challenged the judgment, asking the U.S. Appeals Court for the Third Circuit to intervene.
In arguments Dec. 10 before Third Circuit judges, Assistant Attorney General Dionne Sinclair said the October 2018 ruling put $47 million in taxes outside the government’s reach.
As of Dec. 27, the court formally notified government officials, including Gov. Albert Bryan, Attorney General Denise Geroge-Counts and IRB Director Joel Lee that they will be called to answer the charges brought in the PriceSmart lawsuit.