The VI Internal Revenue Bureau (IRB) only collected excise taxes of $ 26.61 from two local manufacturers in January. However, U.S. District Court judge Robert Molloy said that was enough to overturn an injunction on collecting excise taxes from importers, which is worth about $ 40 million a year.
Since former District Court Justice Curtis Gomez issued the injunction in 2018, the area has been banned from collecting more than $ 84 million in excise tax revenues.
Gomez noted that the government had not set the excise tax on local manufacturers for more than 30 years, essentially penalizing importers of goods with an additional tax in violation of the U.S. Constitution’s trade clause.
The verdict came after attorney Alex Golubitsky filed a lawsuit against the territory on behalf of refrigeration company Reefco Services Inc. in 2014, successfully seeking a refund of the excise duty levied on various goods imported by the company over the years.
Attorney Taylor Strickling has further argued that the company is subject to a discriminatory tax, and Gomez not only issued Reefco a $ 5,287.74 refund, but also issued the November 2018 order urging the government to impose excise taxes until officials can show that they just intend to do so.
The government appealed to the 3rd Circuit, which dismissed the case and ordered the district court to overturn the excise duty restraining order “after there was evidence that the GVI did indeed impose an excise duty on local manufacturers”.
In December, Molloy said he would give the local government the month of January to collect the excise duty on local manufacturers. Molloy held an evidence hearing Tuesday during which Assistant Attorney General VI Carol Thomas-Jacobs called the Excise Commissioner Glenford Hodge to testify about the government’s efforts.
Hodge stated that manufacturers themselves declare the amount spent on raw materials and that this figure is given as 5%. This amount is used as the basis for tax assessment, regardless of the rate required by law.
As an example, Hodge said the IRB received tax payments from a candle maker and a personal care company that makes soaps and lotions.
Strickling asked Hodge if these were the only two local manufacturers that had filed excise returns for the month of January. Hodge said yes, and the total amount of taxes levied by both actors was $ 26.61.
Strickling asked what IRB had done to increase the response and confirmed that none of the big local manufacturers – such as breweries and rum distillers – had filed excise duties.
“We had a meeting last week. We plan to take some initiatives to reach out to local manufacturers and encourage compliance with key regulations, ”said Hodge.
“So then, will you agree that two are not enough?” Said Strickling.
“I know we have to try to reach them and encourage people to be tax compliant,” said Hodge.
The IRB reported in 2018 that there were 142 licensed local manufacturers, but Hodge said it didn’t know how many currently exist.
Strickling said the IRB could get this information from the licensing and consumer affairs department, but Thomas-Jacobs said if anyone knows of an excise evade manufacturer, “give us a call, call the IRB to have them Can take action. “
Strickling argued that the excise structure was still wrongly penalizing importers by taxing the full acquisition cost of items brought into the territory, and the IRB has effectively put in place a “partial tax on local manufacturers” and continues to violate the trade clause.
The 3rd Circuit’s pre-trial detention read: “Determine whether the government has started to impose excise duties on local manufacturers and that was the only problem,” said Thomas-Jacobs.
Aside from that, “there was nothing else for this court to consider” and “today’s evidence clearly shows that the government has begun collecting this,” said Thomas-Jacobs. “There is always an opportunity to collect more.”
“They raised $ 27, but they don’t collect the excise tax that was imposed on local manufacturing,” said Strickling. “The main players in this area have not filed their excise declarations and it is not a working system.”
Molloy said the government’s excise system “is lacking in several ways, in several ways. I think there is an easy way for the government to determine how many local manufacturers there are, and there is an easy way to find those people. And if 2018 is any sign of that, we’re talking about 100 or so local businesses. “
But he agreed with Thomas-Jacobs that the small amount collected by two manufacturers was enough to satisfy the pre-trial detention of the 3rd circuit.
“I fully understand what Reefco is saying that this system is not working at all, no disagreement from the court on this. But let’s leave this subject in the context of this hearing. The pre-trial detention for the 3rd circuit is very clear, ”said Molloy.
Whether the collection method is constitutional “is a different day issue,” and any party with position “can challenge the method used by the BIR to set the excise duty in a separate motion,” Molloy said. “Accordingly, the court will lift the injunction and allow the government to impose excise taxes on local manufacturers and importers of goods imported into the Virgin Islands.”