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USVI, Puerto Rico Look For Rum 'Cover Over' Extension

by Leroy Baker, Tax-News.com, New York

24 April 2012


Legislation has been introduced into both the United States Senate and the House of Representatives to extend the 'cover over' of the excise tax on rum for Puerto Rico and the US Virgin Islands (USVI).

USVI Delegate to Congress Donna M. Christensen and Puerto Rico’s Resident Commissioner Pedro Pierluisi, have jointly sponsored bills that would extend the rum cover over for two years to January 1, 2014, and would apply to distilled spirits brought into the US after December 31, 2011.

Rum produced in Puerto Rico and the USVI and imported into the US - as well as rum imported into the US from foreign countries - is subject to an excise tax of USD13.50 per proof gallon. Under the cover over programme, USD13.25 of that amount is granted back to the treasuries of the territories, based on each territory’s proportion of rum production.

“Both the Resident Commissioner and I understand the importance of communicating to the Congress that the rum cover over is important to the economies of our territories,” said Christensen. “Despite our differences on other issues related to the cover-over, we stand together as the programmes undergo review before the Ways and Means Committee and re-authorization makes its way through the Congress this year.”

The arrangements were originally created to provide budgetary support to the territories for essential public infrastructure and services, and have generally yielded some USD400m annually for Puerto Rico and USD100m for the USVI.

While the law does not impose any restrictions on their use of the cover over funds, the recent differences between the territories referred to by Christensen have arisen over the USVI’s courting of Diageo - the owner of the Captain Morgan rum brand – which announced it would move its operations from Puerto Rico to the USVI this year after receiving promises of USVI subsidies paid for with cover-over revenue.

TAGS: tax | business | law | Virgin Islands | excise duty | legislation | tax rates | Puerto Rico | United States

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