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Excise Tax On Rum Could Be Trimmed

While House Bill Extends Temporary Increase For One Year, Senate Version Would Extend It Only Six Months


December 11, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

President George W. Bush has proposed extending for two years the $13.25 per proof gallon excise tax on rum entering the U.S. mainland.

The Bush administration estimates it will provide Puerto Rico in 2004 with $57 million on top of the $307 million it would receive from the $10.50 tax currently required by law. The House bill would extend the temporary increase for one year, until Dec. 31, 2004. The Senate bill would extend it only six months.

"[Resident Commissioner Anibal] Acevedo [Vila], to the extent that he tried, failed to get the two-year extension," said Jeffrey Farrow, a veteran observer of the U.S. Congress. Farrow noted that under the House bill, the revenue generated provides $77 million to Puerto Rico and the U.S. Virgin Islands (USVI), whereas the Senate bill provides $52 million.

Farrow explained that Puerto Rico gets about nine-tenths of the collections ($69 million under the House bill and $47 million under the Senate version). One-sixth of Puerto Rico’s share should go to the Conservation Trust. He acknowledged the efforts of the Trust and its lobbyists, including the law firms Akin Gump and Quinn Gillespie, where Manuel Ortiz represents the City of San Juan.

Farrow said the House passed on Nov. 20 its version, which would extend the temporary increase on the rum excise tax that former President Bill Clinton established in cooperation with then-Gov. Rossello and former Resident Commissioner Carlos Romero Barcelo. The Senate version was introduced Nov. 19; among its co-sponsors are Senate Finance Committee Chair Charles Grassley (R-Iowa), Ranking Minority Member Max Baucus (D-Mont.), and Sens. John B. Breaux, (D-La.), Jim Bunning (R-Ky.), Kent Conrad (D-N.D.), Robert Graham (D-Fla.), Orrin Hatch (R-Utah), James Jeffords (I-Vt.), John D. Rockefeller (D-W.Va.), and Rick Santorum (R-Pa.).

For many years, the federal government has granted Puerto Rico and the USVI $10.50 per proof gallon on its collections of tax on rum from the two territories. A gallon of 100-proof rum is a proof gallon. For the past 20 years, it has also granted to the two territories the collections on foreign rums.

Farrow said that in the 1980s, the tax was gradually increased from $10.50 to $13.50 per proof gallon, but the increased revenue remained in the federal treasury. This rebuts claims by some commonwealthers that Puerto Rico had the right to the revenue. He added that in 1993, the grant was temporarily increased to $11.30 per proof gallon to compensate in part for the reduction of the exemption under Section 936 of the Internal Revenue Code.

Do you remember how the Trust got involved?

Farrow recalled that in 1999, the grant was temporarily increased to $13.25 at the insistence of President Clinton, who was working with Rossello and Romero Barcelo. He said then-House Ways & Means Committee Chairman Bill Archer (R-Calif.) was adamantly opposed to it, which caused quite a struggle. "It became such a hot issue in the budget talks that year that ABC News reported it was threatening to hold up the budget deal," said Farrow.

Under a compromise, $0.25 cents per proof gallon was to be kept in the federal treasury to prevent any misunderstanding that Puerto Rico had a right to the revenue, recalled Farrow. "The Clinton administration, Rossello, Romero Barcelo, and the congressional tax committees agreed the Puerto Rico Conservation Trust would receive one-sixth of the $2.75 per proof gallon increase involved," he said.

This Caribbean Business article appears courtesy of Casiano Communications.
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