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McClintock: Air Carriers’ Legal Case Strong

Senator vindicated by federal court decision; says sales tax idea gaining support among legislators


May 16, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

New Progressive Party Senate Minority Leader Kenneth McClintock saw it coming.

After federal district court judge Carmen Cerezo struck down the local Treasury Department scheme to collect excise taxes on shipments delivered by air carriers, McClintock is certain the decision will be upheld by the U.S.Court of Appeals for the First Circuit.

"Ever since I brought up this issue in 1997, I’ve said that United Parcel Service is backed by very solid legal footing, " said McClintock.

McClintock was the sponsor of the 1999 local statute giving the local Treasury two years to amend the local excise tax collection system to conform with the requirements of the Federal Aviation Administration Authorization Act of 1994 (FAAAA). The FAAAA prohibits state and local governments, including Puerto Rico, from enforcing any local law that affects air carriers’ prices, routes, or services. The Puerto Rico legislature repealed its own law last July, two days after it went into effect. Two weeks later the carriers sued.

According to McClintock, Treasury Department Secretary Juan Flores Galarza has been downplaying the impact of this decision recently, though he estimated the amount of foregone revenue at $100 million yearly at hearings last year. "This diminishes the secretary’s credibility," said McClintock. "Now he claims the impact will be somewhere between $20 and $50 million," he added.

Meanwhile, the senator insists the amount of lost revenue will, in fact, hover between $80 and $100 million per year. "The hole in the budget remains. Even if the Court of Appeals grants a stay, the legislature cannot constitutionally count on that revenue. The decision has been made," he said.

McClintock said air carriers will have no excuse not to bring their services in Puerto Rico up to speed with the mainland U.S. Since carriers won’t have to wait for Treasury’s clearing to send out their delivery trucks, they should have no problem upholding guarantees such as delivery before 10 a.m. and Saturday delivery, said the minority leader.

Industry sources told CARIBBEAN BUSINESS that air carriers are evaluating right now how they will improve the services they provide in Puerto Rico given the new scenario, but will make no announcements while the litigation is still pending.

McClintock vouched for establishing a sales tax as the long-term solution to the government’s budget woes. He said the sales tax would favor everyone involved because it would generate revenue for the government, lessen excise tax impositions for merchants, and be gentle on the consumer’s pockets.

The environment at the legislature seems favorable for the sales tax to become a reality, according to McClintock. "Air balloons have been launched, and no one has shot them down," said McClintock. "Even [House Treasury Committee Chairman] Francisco Zayas Seijo admitted that it was the only possible long-term solution," he added.

However, the initiative must come from the administration, because it is too big a project to be initiated by the legislature, said McClintock.

Flores Galarza was not available to comment on this story.

This Caribbean Business article appears courtesy of Casiano Communications.
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