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February 27, 2007
Governor offers testimony to U.S. House Subcommittee Gov. John deJongh today presented testimony to the House Subcommittee on Insular Affairs on issues that he deemed are "critical to the economic development and fiscal independence of the Virgin Islands." The submission of testimony to the subcommittee came at the start of four days of meetings in the nation’s capitol with leaders of both houses of Congress and officials of the Bush Administration and follows his participation in the Winter Meeting of the National Governor’s Association, also in Washington, D.C. deJongh’s testimony was built around a summary of five key issues and proposed legislative or administrative action. The governor is seeking to clarify that an income tax return filed in good faith by a taxpayer in the Virgin Islands shall be treated as a tax return filed in the U.S. for purposes of the statute of limitations in both jurisdictions. The other priorities outlined by deJongh include: the removal of the cap on rum excise taxes returned to the Virgin Islands; the elimination of the cap on Medicaid funding; earned income credit cost sharing and the establishment of a border patrol unit in the Virgin Islands. In building the case for tax returns filed in the Virgin Islands to be treated similarly to those in the United States for the purpose of the statute of limitation, deJongh explained the history behind the Tax Reform Act of 1986, the deJongh also commented on actions taken in recent days by the Internal Revenue Service. "The issuance of a memorandum last week without the policy input of the local government is a step backwards," deJongh said Tuesday. In the memorandum, the IRS said that the tax status of about 8,500 Virgin Islanders who earn more than $75,000, including employees of hedge funds, would face renewed scrutiny as the agency continued its stepped up effort to root out tax evaders. The IRS memorandum sets a three-year limit on audits of upper-income residents who immediately provide federal tax returns for the past 20 years. The notice also requires residents to file tax information with the federal government in addition to the returns filed with the local Bureau of Internal Revenue. While residents are subject to U.S. tax rules, up to this point they have only been required to file tax returns locally. At issue is an IRS ruling last year that said the statue of limitations restricting the agency from examining more than three years of tax returns does not apply to the those claiming residency in the Virgin Islands. The February 21st notice requires those who earn more than $75,000 to file a form 1040 that reports zero income but includes the filers’ name, Social Security number and address. Residents must also include a statement declaring residency in the Virgin Islands and an affirmation that a tax return was filed with the local Bureau of Internal Revenue as well as details about the amount of income reported and tax paid to the territorial government. In making the case for the removal of the cap on rum excise taxes returned to the Virgin Islands, deJongh pointed out that as part of the long standing tax relationship with the territory, Congress historically provided that all federal excise taxes on all products including rum—manufactured in the territory---shall be returned to the local treasury. In 1984, that policy changed for reasons that are no longer relevant. While Congress has subsequently increased the rum excise tax to $13.50 per proof gallon, the amount to be covered over to the territory is limited to a base rate of $10.50 per proof gallon. The return rate was increased temporarily in 1999 and Congress has regularly extended the temporary rate since that time but in the absence of such extensions, deJongh noted that the cover-over rate would return to the $10.50 per proof gallon base rate. The governor’s testimony urged Congress to remove the cap on the cover-over rate and authorize the return of the full amount of rum excise taxes to the Virgin Islands . The revenue stream generated by these taxes are earmarked to funding bond indebtedness. "There are no policy reasons that stand in the way of Congressional action to remove the cap. The tax was imposed, in the first place, not to raise revenues for the federal government but to ensure a level playing field for domestically produced distilled spirits with which V.I. rum competes in the U.S. market." The government, deJongh said, is requesting that a permanent solution to the rum formula be created by removing the rum tax cap in the Bush Administration’s next budget submission to Congress. deJongh also said in his Tuesday testimony to the House Subcommittee that the ability of the Virgin Islands government to assure adequate health care to residents is being hampered by a "discriminatory cap on Medicaid funds provided to the Virgin Islands and the other U.S. territories." The quality of health care and the amount of federal support should not depend on whether an individual lives in California , Alaska or in a territory of the United States . While Congress approved an increase in the amount of Medicaid funds to the V.I. two years ago, such increases only narrowed the gap between the funds allotted the territory and the funds the Virgin Islands would be entitled to if the territory were treated as a state under the Medicaid formula. DeJongh requested the administration’s support in making further improvements in the Medicaid formula that would “ensure the neediest residents in the territories receive no less favorable treatment than the neediest residents in the United States." Addressing the issue of earned income credit cost sharing, DeJongh said in his testimony the cost of Earned Income Credit on territorial jurisdictions who function under a mirror-code tax system has become a significant burden, "a burden which has been exacerbated by recent increases in the value of the credit." The government of the Virgin Islands has proposed with the support of Guam, an Earned Income Credit cost-sharing arrangement based on existing provisions of the Internal Revenue Code. Under the proposal, "Insular area governments with mirror code tax systems would be authorized to make mandatory, the employer 'advance payment' program under Section 3507 of the IRS Code." Under this arrangement, an employer would advance pay approximately 60 percent of his qualifying employees’ Earned Income Credits, and would be credited for the payment when filing federal form 941, relating to FICA payments for employees. The employer would be made whole on a quarterly basis and the federal government would assume responsibility to approximately 60 percent of the Earned Income Credit obligations, with the local jurisdiction retaining responsibility for the remaining 40 percent. Congress had enacted the Earned Income Credit as a refundable tax credit to assist low-income workers with little or no income tax liability. deJongh, after acknowledging the work of V.I. Delegate Donna Christensen towards the establishment of a Border Patrol Unit in the Virgin Islands , restated his administration’s desire for such a unit to be formed in the territory. He pointed out that there is no Border Patrol Station in the Virgin Islands, with the closest station responsible for protecting the territory’s borders and coast lines located in Puerto Rico . "The station in Puerto Rico, however, must focus primarily on the hundreds of miles of coastlines in that part of the Caribbean, leaving the coastlines of the Virgin Islands largely exposed and vulnerable to human smuggling and drug trafficking." As a result, international drug smugglers and organized crime have been increasingly utilizing the Virgin Islands as a major transshipment point into the United States. "The scourge of smuggling and illegal drug trafficking has had a direct impact on the crime rate and the quality of life in the territory." deJongh asked that the federal agencies tasked with assessing the need for such a unit in the Virgin Islands render its findings as quickly as possible. DeJongh will offer similar testimony on Wednesday when he testifies before a meeting of the Interagency Group on Insular Affairs at the Department of the Interior. |
