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HomeNewsLocal newsExcise Tax Collection Can Resume in January, Court Rules

Excise Tax Collection Can Resume in January, Court Rules

Judge Robert Molloy (Photo from U.S. District Court)

The Virgin Islands government can look forward to a return of excise tax revenues in 2021, thanks to a Wednesday ruling in District Court. But the judge who lifted a two-year-old injunction on collecting those taxes said he would allow a conditional reinstatement, based on assurances from the Internal Revenue Bureau.

Gov. Albert Bryan Jr. cheered the decision by District Court Judge Robert Molloy, saying it couldn’t have come at a better time. The Virgin Islands lost more than $40 million a year for each year excise tax collection was suspended.

Lawyers representing IRB and the plaintiff in a lawsuit alleging an uneven application of excise tax rules appeared at a hearing before Molloy on Wednesday. The hearing followed an October ruling by the U.S. Appeals Court for the 3rd Circuit. A three-judge panel of the appellate court said the Virgin Islands could reinstate taxes on imported and exported goods if it could prove the rules also applied to local manufacturers.

The attorney representing the plaintiff in the original lawsuit – Reefco Services, Inc. – presented evidence that between 1984 and 2019 the V.I. government failed to assess excise taxes on local manufacturers. That practice violated the Commerce Clause of the U.S. Constitution, said attorney Taylor Stickland.

Reefco, a local manufacturer, provides maintenance services to the marine industry. Among their service options is the construction of custom-made refrigeration systems for private vessels. The company got involved in a dispute with IRB when the bureau demanded the payment of excise tax on parts imported by Reefco that were used to build the cooling systems.

As a result of their legal challenge, then-District Court Judge Curtis Gomez ordered a refund of tax payments and declared the tax assessment system unconstitutional.

At Wednesday’s hearing, the government presented one witness, Internal Revenue Bureau Excise Tax Supervisor Glenford Hodge. Hodge testified about the revised electronic tax assessment system that, once implemented, would cover importers of goods into the V.I. and exporters of locally made products.

“The government has ensured there is a system in place. From there, the collection of excise taxes can begin, and the government can report on its collection activity,” said Justice Department Deputy Attorney General Carol Thomas-Jacobs.

With a new excise tax system in place, the government is ready for a Jan. 1, 2021 rollout, Thomas-Jacobs said. But Stickland told the court assurances were not enough. But after hearing Hodge’s testimony Molloy said it was time to see if the new method could work.

The judge lifted the injunction and set a Feb. 3 evidentiary hearing to see if the tax bureau’s electronic system would correct the deficiencies.

By Wednesday afternoon, Government House issued a statement hailing the judge’s ruling. “This is certainly welcome news at a time when revenue for the GVI is in a precarious place because of the economic crash brought on by the COVID-19 pandemic,” Bryan said.

The governor also praised members of his cabinet and their administrators for pursuing a resolution of the tax case, including Office of Management and Budget director Jenifer O’Neal, IRB Director Joel Lee, Attorney General Denise George and Bryan’s in-house legal counsel.

George joined the governor in commending those whose efforts led to the Wednesday ruling in District Court. “This is quite a victory for the territory. It was a long and challenging legal battle from the District Court to the Third Circuit and back,” she said.

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