US Senators Seek to Make Rum Tax Cover Over Permanent With New Bipartisan Bill
On Tuesday, US Senators introduced a bipartisan bill meant to address issues surrounding the uncertain future of the rum tax cover over. Established in 1917, the scheme transfers a portion of the excise tax paid on rum imported from U.S. territories to those respective territories. Initially, Puerto Rico was a part of this scheme with the U.S. Virgin Islands (USVI) later being included as well. However, the law has not been updated since 1986 which has left U.S. territories in limbo waiting for Congress’s periodic reauthorization.
Two Senators are a part of this bill, Democrat Bob Menendez of New Jersey and Republican Bill Cassidy of Louisiana, in addition to Representatives Jenniffer González-Colón of Puerto Rico and Stacy Plaskett of the USVI. Representatives from U.S. territories have the right to introduce legislation and speak on the floor, but they cannot vote on bills.
“The rum cover over is a critical tool to promote economic development and create good paying jobs in Puerto Rico and the U.S. Virgin Islands,” said Sen. Menendez.
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The purpose of the new bill is to increase the permanent rate of excise tax transferred to Puerto Rico and the U.S. Virgin Islands. The current law sets the rate at $10.50 per proof gallon and an additional $2.75 requires periodic reauthorization by Congress, a total of $13.25. The reauthorization requirement creates uncertainty for these territories because they do not have a reliably set amount of funds to expect.
If passed, the recently introduced legislation will amend the Internal Revenue Code of 1986 and make $13.25 per proof gallon the permanent rate. This would eliminate the need for Congress to vote on the rate.
“This is a measure to fix a long-standing fiscal cliff related to the rebate of federal excise taxes on distilled spirits production in the territories: the ‘rum cover over’. The cover-over has been part of the fundamental tax relationship between the United States and its territories going back over a century,” said Rep. Plaskett.
The bill would also add a new provision requiring funds transferred to Puerto Rico to go toward the Puerto Rico Conservation Trust. This would provide funding for the conservation of natural environments through educational programs and other initiatives.
READ MORE: Senators Introduce Bill That Could Prevent Cuban Havana Club Rum From Ever Entering US Market
“Annually, we receive more than $330 million from the rum excise tax cover-over, which has been vital to supporting critical services, including healthcare, education, and public safety, and funding environmental and other conservation initiatives,” said Rep. González-Colón, Co-Founder and Co-Chair of the Congressional Rum Caucus.
Rep. González-Colón continued, “This increase is vital to address uncertainty both Puerto Rico and USVI have experienced, including funding cliffs in several occasions, and ensure resources continue reaching our community.”
Many argue that the rum cover over tax is vital for the local economies of rum-producing U.S. territories. However, while it is an incredibly important source of tax revenue, it’s not without its faults.
In the past, huge corporations like Diageo have taken advantage of the rum cover over. This multinational spirit company managed to wrangle a large portion of cover over revenues for itself alongside tax breaks in exchange for moving its Captain Morgan facilities to the USVI.
The 118th Congress has brought several new pieces of legislation forward dealing with the world of rum. Though, it is difficult to say if this piece of legislation or any of the previously introduced bills will make any headway.
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