The territory’s lost excise tax revenue has grown to more than $74 million, and it’s unclear when a federal judge might allow government officials to resume collection.
U.S. District Court Judge Curtis Gomez enjoined the local government from collecting excise tax in November 2018, and said the injunction would remain until officials could prove they were applying the tax equitably in accordance with the provisions of the Commerce Clause of the Constitution.
The ruling came when refrigeration company Reefco Service Inc. and attorney Taylor Strickling successfully argued that the company is entitled to a refund of excise taxes paid to the local government because the Internal Revenue Bureau had been taxing importers of manufactured goods, but not local manufacturers.
Local officials acknowledged that they had not been following a previous court order for nearly 30 years, which had required promulgation of tax regulations on local manufacturers, and only drafted the new regulations in February 2019.
As recently as Dec. 6, Gomez denied a government motion to lift the injunction and wrote that “the new proposed scheme continues to discriminate against interstate commerce in its effect.”
While U.S. District Court Judge Robert Molloy replaced Gomez on the bench in April, he has yet to issue an order as the government appealed Gomez’s previous ruling to the 3rd Circuit court.
The Attorney General’s Office has asked the appellate judges to find Gomez’s ruling void because the lower court was “acting beyond its legal power or authority.”
There has been no movement in the appeal since the parties filed briefs in April and May, and the government is still prohibited from collecting excise tax at a time when revenues are falling far short of expectations due to the ongoing COVID-19 pandemic.
V.I. Internal Revenue Director Joel Lee said Friday that excise tax losses through August total $74,032,787.09.
In addition to the excise tax, the territory’s tax on shipping containers is also being challenged in a federal lawsuit filed by PriceSmart.
Assistant Attorney General Ariel Smith filed a motion to dismiss that case in March, and argued in the most recent filing in June that the Commerce Clause does not apply to the Virgin Islands because “the Supreme Court’s recent refusal to overturn the insular cases means that the Government of the Virgin Islands should not be viewed as a state.”
The tax is fair and legal, Smith argued, and the federal court doesn’t have jurisdiction “because this matter arises out of a challenge to a territorial tax — a matter of local concern — for which Virgin Islands’ courts can offer an adequate remedy.”
Molloy has yet to rule on the government’s motion to dismiss PriceSmart’s lawsuit.