U.S. Senate committee OKs rum cover-over extension

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ST. THOMAS - The extension of the territory's rum cover-over passed out of the U.S. Senate Finance Committee on Thursday, the first step in what could be a long process to get the measure approved.

The cover-over is included in the Expiring Provisions Improvement Reform and Efficiency Act of 2014, known as the tax extender act.

The cover-over is the $13.50 excise tax that the U.S. government collects on every proof-gallon of Virgin Islands-produced rum sold stateside. A portion of the excise tax is returned - or covered-over - to the territory.

The cover-over rate is $10.50 per proof gallon, but in 1999, the amount temporarily was increased by Congress to $13.25 per proof gallon. Since that time, Congress has extended the higher rate of return for the territory multiple times, typically in a package of tax extenders.

The extension was not approved before the end of 2013, so the cover-over briefly reverted to the $10.50 rate.

The move wreaked havoc with the territory's Fiscal Year 2014 budget, which depends on the rum revenues.

Typically, the Department of Interior advances the territory its estimated cover-over for the coming year.

However, Interior provided the advance at a rate of $13.25 per proof gallon until the Dec. 31 expiration date and then used the lower $10.50 rate for the rest of the year.

Interior's decision created a $30 million shortfall in the V.I. government's budget for the current fiscal year.

In February, after much lobbying by the territorial government, Interior released the remaining money at the higher cover-over rate. However, if the extender does not pass Congress, the Virgin Islands will be on the hook to repay the money.

The payment from Interior totalled $60,841,505; however, about half of that amount will go to the territory's two rum producers - Cruzan and Diageo - under their current agreements with the V.I. government, which will still leave a $40 million budget shortfall for FY 2014.

Delegate to Congress Donna Christensen said the legislation to extend the cover-over passed through the Senate Finance Committee by a voice vote without amendment.

"I am pleased that the extension has passed the Finance Committee, but it will also have to pass the full Senate and then be passed by the House," she said. "There may still be a long way to go before final passage."

In the past, members of Congress have objected to the territory's cover-over and have filed amendments to limit the use of the funding, according to Christensen.

Sen. Robert Menendez, D-N.J., filed an amendment to limit how the territories use the cover-over funding, but it was not offered, the delegate said.

"I am pleased that so far we have a clean extension," Christensen said.

Gov. John deJongh Jr. said the legislation would make the cover-over retroactive to Jan. 1 and it would last for two years without limitations or restrictions.

- Contact reporter Aldeth Lewin at 714-9111 or email alewin@dailynews.vi.

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