Virgin Islands Law Blog

Virgin Islands Law Blog

U.S. Virgin Islands law & politics

Tax Deductions Every Small Business Owner Should Know

Posted in Labor & Employment

Tax deductions are important tools for small business owners that can help them maintain efficient operations while reducing their tax obligations. The more deductions you can take, the less income the Internal Revenue Service (IRS) can tax you on, which means greater savings and more capabilities to grow your company.

The following are a few common tax deductions of which every small business owner in the United States and its territories should be aware:

  • Vehicle expenses: If you regularly use your motor vehicle for business, or your company has its own car, you may deduct a portion of the costs associated with using it. There are two different methods for doing so. The first is the actual expense method, where you track and deduct every business-related expense associated with your vehicle. The other is the standard mileage rate method, in which you deduct a certain amount of money for every mile driven, plus all tolls and parking fees related to business.
  • Traveling: Whenever you travel for business reasons, you may deduct many of the expenses, including plane fare, car costs, taxis, meals, lodging, cleaning clothes, phone calls, tips and taxes. As long as business is the primary purpose of the trip, these costs are deductible. However, if you take family members along, only your expenses may be deducted, as only you are there for business purposes.
  • Business formation expenses: The cost of actually starting up a business are considered capital expenses. You are allowed to deduct $5,000 of these expenses in your first year of business. Remainders must be deducted equally over the course of the next 15 years.
  • Books and professional fees: Business books for your finances are fully deductible as business expenses. You may also typically deduct fees you pay to attorneys, consultants, tax professionals and accountants in the year those expenses were incurred. But if the work they performed was related to future years, those expenses may need to be deducted over the amount of years in which you expect to benefit from those services.
  • Business entertaining: If you pay to entertain current or prospective customers or colleagues, you may deduct 50 percent of those costs, as long as they meet certain stipulations. The entertaining must be directly related to business, with business discussed at the event—or it must be somehow associated with your business. The entertainment must also take place immediately before or after business discussions.
  • Interest: If you finance purchase for your business, all interest incurred is completely tax deductible. This is also true if you take out a personal loan, but use its proceeds for business purposes.

Navigating the complexities of the IRS and U.S. and territorial tax law can be complicated. Be sure to meet with a skilled business planning attorney to make sure you are getting the most out of your deductions.

 

Attorney Adam Marinelli is an Associate in the Corporate, Tax and Estate Planning Tax Group at BoltNagi, a respected and well-established business law firm serving clients throughout the U.S. Virgin Islands.

How Can You Tell When an Anticipatory Breach of Contract Has Occurred?

Posted in Labor & Employment

When you’ve signed an agreement with another party, one issue you may find yourself dealing with is an “anticipatory” breach of contract, which often means taking action before an actual breach has occurred.

For a little context, a contract could be considered breached or broken if either party unconditionally refuses to perform under the contract as promised. This unconditional refusal is referred to as a “repudiation” of the contract.

Whenever a party indicates through actions or words that it will not live up to its contractual obligations, the other may file a breach of contract claim and seek remedies, typically in the form of monetary payment. This is referred to as “anticipatory breach of contract,” a situation in which the party might not have actually breached the contract yet, but there is reason to believe it will not live up to its end of the deal.

The following are a few of the most common situations in which repudiation may occur:

Express repudiation: Express repudiation is a circumstance in which one party clearly communicates an unconditional refusal to the other party. The repudiating party must outright state that it will not follow through with the deal. An ambiguous refusal—or one qualified with certain conditions—is not enough to be considered express repudiation. It must be completely clear, direct and straightforward, with no other potential meaning.

Actions make it impossible for the party to perform: Actions can sometimes be just as powerful as words when it comes to repudiation. If, for example, someone wanted to start a business and took out loans to do so, but then recklessly ran the business into the ground and incurred numerous other debts in the process, it would be impossible for that person to pay back those original loans. Although this isn’t considered express repudiation, it is clear to the lender, through the actions of the borrower, that the borrower will not live up to his/her contractual agreement because of voluntary actions.

Property that is the subject of the deal was transferred to another party: If the contract in question was in regard to the sale of a certain piece of property, repudiation would occur if one party either transfers or makes a deal to transfer that same property to a different party. For example, if you were under contract to purchase a house, but then discovered the seller sold it to someone else, your contract was repudiated and you may be able to seek legal remedies.

It is, in some circumstances, possible for a party to repudiate the contract, but then retract that repudiation. If the other party did not make a “material change” in his or her standing due to that repudiation, the agreement may return to normal.

Consult an experienced business attorney to learn more about this issue and others related to business contracts.

 

Attorney Mark Kragel is Senior Counsel with the Litigation Practice Group at BoltNagi, a well-established and widely respected civil litigation law firm proudly serving individuals, businesses and organizations throughout the U.S. Virgin Islands.

What Does it Mean to ‘Pierce the Corporate Veil?

Posted in Labor & Employment

One of the main reasons business owners decide to form a company in the structure of a limited liability company (LLC) or corporation is so they can avoid personal liability for business debts, if the business is unable to meet its obligations. However, there are situations in which courts will hold the owners, members or shareholders of an LLC or corporation personally liable for these debts, a circumstance known as “piercing the corporate veil.”

This situation has occurred more frequently in recent years after the economic downturn of 2008-2009, when business owners were either struggling to keep their companies afloat or deciding to shut down operations. Unpaid creditors may sue to “pierce the corporate veil” and hold these owners responsible.

The following are some situations in which courts may agree to pierce the corporate veil:

  • There is not a true separation between owner(s) and company: If the owners do not maintain a true legal separation between their personal finances and their business, the court could determine the LLC or corporation is invalid—and just an alter ego of the owner. In this situation, the owners would be personally operating the business as if the LLC or corporation was not in place. An example would be owners paying personal bills from a business checking account.
  • The company was engaged in fraudulent or illegal practices: If the business owners recklessly borrowed money and then lost it, made various deals knowing the business would not be able to meet its payments or otherwise acted in a dishonest or reckless way, a court could determine the business owner was guilty of fraud. As a result, the owner would not be protected by limited liability through a corporate structure.
  • The creditors suffered losses in an unjust manner: If someone who was engaged in business with the company had unpaid bills or a court judgment and there were other factors at play (such as those noted above), a court may pierce the corporate veil to correct the injustice.

Factors to consider when piercing the corporate veil

A court will take a number of factors into account when deciding whether to pierce the veil. These include the following:

  • Whether the business was engaged in some sort of fraudulent behavior
  • Whether the business had failed to follow formalities associated with a corporation
  • Whether the business was inadequately capitalized
  • Whether the business was completely controlled by either one person or a small group of people

Closely held companies are far more likely to lose their limited liability status than larger companies, as they are less likely to observe what are known as “corporate formalities.” These include annual shareholder or directors’ meetings, keeping accurate records, adopting bylaws for the company and ensuring those bylaws are followed by everyone in the organization.

For more information on “piercing the corporate veil” and how to best protect both your business and personal interests, meet with a dedicated corporate law attorney in the U.S. Virgin Islands.

 

Attorney J. Nash Davis, is an Associate in the Corporate, Tax & Estate Planning Practice Group at BoltNagi, an established and trusted corporate planning law firm serving a wide range of businesses and organizations throughout the U.S. Virgin Islands.

Key Questions to Avoid When Interviewing Candidates

Posted in Labor & Employment

Whenever you interview candidates who are applying for a job opening, you need to figure out exactly what experience, skills and capabilities they bring to the table that would benefit your organization. However, many employers are just as nervous during the interview process as the candidates, and they may end up asking questions that could open them up to potential legal issues.

As long as you focus your questions primarily on the applicant’s skills and qualifications, you should be fine. But for your reference, the following are a few types of questions you should avoid asking:

  • Questions about family or gender: You are not allowed to discriminate against employees or job applicants based on their gender, their family life or a pregnancy. This includes one’s gender identity and transgender status, which has been a big topic of discussion lately across the United States.
  • Questions about ethnic background or race: Again, you cannot discriminate against employees or applicants based on ethnicity or race. It is illegal to ask any questions about race or origin during an interview. You may ask if candidates are able to speak certain languages fluently, but you are not allowed to ask specifically what race or ethnicity they are.
  • Questions about age: Applicants’ ages are usually obvious on their application, which often contains information such as college graduation dates or years of experience, so there’s not really a need to ask about age in the first place. But you should also never make assumptions that someone’s age precludes him or her from doing certain work. Instead, focus on knowledge of the job or demonstrated experience the person has in the field.
  • Questions about criminal history: You are allowed to perform criminal background checks, but certain laws may prohibit you from asking questions about your applicant’s criminal record, along with arrests that did not lead to convictions.
  • Questions about disability: You are not allowed to ask applicants questions about whether they have a disability or how their disability affects their daily life. However, you are allowed to ask them how they would perform certain functions associated with the job and if attendance would be difficult, as long as you ask these questions to all applicants—not just those with disabilities.
  • Questions about religion: It is illegal to ask any questions about an applicant’s religious beliefs. However, if the job you have requires employees to work weekends, you may ask applicants about their availability, as long as you ask all applicants these questions.

The best way to avoid getting yourself into trouble with inappropriate questioning is to write down all of the questions you will ask your applicants ahead of time, and to not deviate from that list whenever possible. For more information on how to properly interview job candidates to avoid potential liability, consult a skilled labor law attorney in the U.S. Virgin Islands.

 

Attorney Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor & Employment Law Practice Group at BoltNagi, a widely respected and well-established business and employment law firm serving clients throughout the U.S. Virgin Islands.


 

How an Assignment of Contract Works

Posted in Labor & Employment

An assignment of contract happens when one party involved in a contract hands the obligations and benefits of that contract to another party, known as the “assignee.” Generally, the assignor wants the assignee to completely take on all of the rights and obligations of the contract. However, the other party involved in the existing contract must be properly notified before this may occur.

The following is an example situation in which a contract may be assigned to another party:

Imagine that the Smith Company has a contract with Joe to deliver him firewood every other week. The Smith Company could assign the contract to a new company and provide Joe notice of that change. Then, the new company would continue to make the deliveries on the same schedule, as long as Joe agrees to the change.

However, assigning a contract in this manner does not necessarily mean the assignor no longer has any liability associated with the contract. Some contracts have stipulations in place for this exact purpose, that the original parties will guarantee the agreement will be executed as stated. This means the assignee must fulfill all of the terms agreed to by the assignor.

When are assignments not used or enforced?

There are a few situations in which assignments are not allowed or enforced. These include the following:

  • The contract specifically says assignment is not allowed: Some contracts include an anti-assignment clause that could void any assignments one party attempts to make. In this case, the only option is to negotiate an end to the contract if one party is no longer able to meet its obligations.
  • The assignment significantly alters the arrangement made in the contract: If the assignment somehow affects the performance due from one party to the other according to the contract, decreases the value anticipated or otherwise increases risks for the other party not assigning away its contractual rights, courts are typically not going to enforce the assignment. So, using the example above, if Joe expected to receive shipments of pine wood, but the assignee only supplied oak, it would materially and significantly alter the arrangement.
  • The assignment is in violation of the law: There are some laws in place that could prohibit assignments in certain situations. Many states and territories do not allow future wages to be assigned. The U.S. federal government also has laws prohibiting the assignment of various claims made against the government. Certain other assignments might not be illegal, but could be in violation of public policy.

Before you attempt to assign your contractual responsibilities and rights to another party, you must be sure that you are doing so in compliance with the law and that you have provided proper notice to all parties affected. To learn more about this issue and how it might impact your agreement, meet with a corporate law attorney.

 

Attorney Steven K. Hardy is an Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi, a respected and established corporate planning law firm serving clients throughout the U.S. Virgin Islands.

Establishing a Probationary Period for Your Employees

Posted in Labor & Employment

Most Virgin Islands employees are subject to a 90 day probationary period of employment pursuant to the “Virgin Islands Wrongful Discharge Act”.  Notwithstanding this provision of VI labor law, employers may establish probationary periods as a means of evaluating recently hired employees, along with any workers who may not be performing well on the job. While these periods may be useful management tools, there are also some potential legal pitfalls if they are not implemented correctly.

The idea of a probationary period is that a company modifies the typical employment rules for someone who is either new to a position or who is struggling to keep up with his or her performance expectations. In a probationary period, the employee would meet with their supervisor on a regular basis to review progress and go over any concerns or questions either side has. The employer would also provide training and feedback. If the employee does not improve during this period, they would likely be fired.

These arrangements may cause labor law challenges if they compromise what’s known as at-will employment. In an at-will structure, an employer may fire a worker at any time for any legal reason. This is the case with the 90 day statutory probationary period under the Virgin Islands Wrongful Discharge Act.  However, employers might lose this right if they make certain guarantees that are not consistent with this type of employment arrangement.

To that end, if an employer implies there will be a probationary period outside the statutory 90 day probationary period, it is assumed that the employee will have that entire stretch of time to either learn a new position or make necessary improvements. Workers will also reasonably expect to stay employed if they successfully complete the probationary period.

How to implement probationary policies effectively

If your company does decide to move forward with a probationary period for workers, here are a few tips to help you ensure it’s done the right way:

  • Clearly state your expectations: Make sure your employees know exactly how long this probationary status will last, what must change during that time, how often they must meet with you and any milestones they must hit.
  • Give constant feedback: Regularly review employees’ performance with them. If they are having difficulties, make sure to provide guidance for how they can improve.
  • Get help when needed: Assign the employee a mentor, such as someone on staff who has a lot of experience. Be sure to provide the probationary employee with all of the additional resources he or she needs to be successful.
  • Track and document: Make sure you are keeping close tabs on everything that’s happening, and that you are documenting it accordingly. You must be able to provide evidence that you gave the employee a fair shake, so you should record the employee’s performance, your efforts taken to coach and train them, etc. This could protect you if the worker decides to take legal action, claiming that you violated his or her rights.

To learn more about how can implement an effective probationary period policy that protects your company’s best interests, consult an employment law attorney who has familiarity with the specific labor laws and regulations of the U.S. Virgin Islands.

 

Attorney Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor & Employment Practice Group at BoltNagi, a widely respected and established employment and labor law firm serving businesses and organizations throughout the U.S. Virgin Islands.

The Impact of FLSA Amendments on USVI Employees

Posted in Labor & Employment

Hundreds of workers throughout the U.S. Virgin Islands may be eligible for overtime pay in 2017 after recent amendments to the Fair Labor Standards Act (FLSA) that go into effect on December 31, 2016.

In May, the U.S. Department of Labor published its revisions to the FLSA’s overtime exemption rules. The biggest change — and the one that will affect the most business owners across the nation — is related to minimum salary levels that employees must get paid to be exempt from national overtime requirements.

Now, any employees who make less than $913 per week (or $47,476 per year) are considered nonexempt from these requirements. The previous minimum had been just $455 per week ($23,660 per year), a standard set by the U.S. Department of Labor back in 2004.

This law affects anyone who works in a salaried position. It will have a particularly significant effect on white-collar positions, including administrative personnel, executives, creatives, marketing professionals and various other highly compensated employees. Employers are required to follow these new rules or else be subject to various penalties.

Preparing for the new rules

In the past, employers had been able to avoid paying overtime to most salaried employees because the minimums were so low. Now, they are going to have no choice but to prepare for these new rules in a way that both makes them compliant, while also keeping their books in order.

The following are a few strategies for employers in preparation of this change:

  • Identify any exempt employees who have a salary below the new $47,476 minimum. It’s important to determine if it is more expensive to pay those employees overtime or increase their pay over the minimum.
  • Create plans for employees who will remain exempt, including new compensation and benefit packages. When bringing employees to the new minimum salary, consider if you are going to raise base pay or provide commissions or bonuses — or do some combination of the two.
  • Any employees to be reclassified as hourly will need a new hourly rate established. But remember that not every position qualifies for hourly classification.
  • Make sure nonexempt employees who were not previously nonexempt know how these changes affect their day-to-day work. They will now be in charge of recording their hours, requesting overtime, taking meal breaks and obeying other policies.
  • Communicate why you are making the changes so employees do not look at the reorganization as a demotion or punishment. Be completely upfront about the changing rules nationally and how you came to make the decisions you did.

For more information and guidance on how you can better prepare for the changes coming as a result of these FLSA amendments, meet with an employment law attorney.

 

Ravinder S. Nagi is Chair of the Labor & Employment Practice Group at BoltNagi PC, a trusted and established labor law firm, assisting businesses and organizations throughout the U.S. Virgin Islands.

Common Immigration Law Issues Impacting Today’s Businesses

Posted in Immigration, Labor & Employment

If your business employs immigrant workers in the U.S. Virgin Islands, there are a number of common immigration legal issues you need to master to ensure you are in complete compliance with the law.

The following are some of those pressing issues:

  • Form I-9 still in effect: The U.S. Customs and Immigration Service (USCIS) website still lists Form I-9, even though it actually expired on March 31, 2016. Still, businesses are required to use this form to verify that any new employees are legal residents or have the proper work documentation. Failure to produce this form could result in financial penalties.
  • No changes to H1-B visa caps: Congress has placed a limit on the number of skilled foreign workers who are allowed to work in the United States with an H1-B visa. That number remains at 65,000, even though there are more than 236,000 H1-B petitions that have already been filed for the 2017 fiscal year.
  • Unsure legal status of thousands of workers: There are some 50,000 workers who have their legal status in limbo. This is the result of a U.S. Supreme Court case that challenged executive orders authorizing the Department of Homeland Security to put off deporting specific illegal immigrants for up to three years. Presumably, those immigrants had been working and would continue to do so if provided with certain work permits while their deportation was deferred. Businesses employing individuals who had these permits might suddenly discover their employees are not actually eligible to work in the country.
  • Immigration reform bringing new competition: Research from the Partnership for a New American Economy indicates that immigrants are 50 percent more likely to start a new company than people born in the United States. Although these businesses can provide some much-needed revitalization to local economies, they also pose new competition for existing businesses.
  • Immigration reform leading to increased wages: According to the Fiscal Policy Institute, undocumented workers who achieve legal employment status will get a raise of between 5 and 10 percent. This means many employers will need to factor these raises into their projections for the coming years.
  • International relations: By bringing in more skilled and unskilled workers to the United States and its territories, there could be a so-called “brain drain” in underdeveloped countries, which could in turn impact businesses that operate internationally. Companies that have locations in these underdeveloped nations could have a more difficult time finding local workers who are able to perform their job tasks.

These are just a few examples of the many immigration-related issues facing business owners across the country, including here in the U.S. Virgin Islands. Consult an experienced immigration law attorney for further guidance on these matters.

BoltNagi is a widely respected and well-established immigration law firm serving individuals, businesses and organizations throughout the U.S. Virgin Islands.

Virgin Islands Gross Receipts Tax Amnesty in Effect

Posted in Tax & Estate Planning

Virgin Islands Bureau of Internal Revenue Director Marvin Pickering has announced that businesses that are delinquent in paying their Virgin Islands Gross Receipts Tax can avoid penalties and interest if they pay by January 3, 2017.

The amnesty was included as Section 6 of Act No. 7930 (Bill No. 31-0448) approved by the 31st Legislature in September. An amendment offered by Senator Cliff Graham of St. Thomas established the amnesty, with the goal of encouraging businesses to pay past due taxes now, to provide the Government of the Virgin Islands desperately needed revenue. The amnesty program technically terminates on December 31, 2016, but due to that date falling on a Saturday, when the Bureau of Internal Revenue offices are closed, as well as on Monday, January 2, 2016 for the New Year’s holiday, so Director Pickering has administratively set January 3, 2016 as the date for the deadline on the amnesty program.

Director Pickering is urging taxpayers who have outstanding gross receipts tax obligations to file and pay prior to the deadline. Pickering said in a statement that “the last gross receipts tax returns that will qualify for the amnesty program is the August 2016 monthly gross receipts tax return and the annual 2015 gross receipts tax return”.

Payments for Virgin Islands Gross Receipts taxes may be made by cash, credit card (Visa or MasterCard), bank check or money orders. Pickering said “IRB has a concern about dishonored checks and so is taking this precaution to ensure that all payments accepted under the Gross Receipts Amnesty Program will be honored by the bank”.

“The amnesty will not pause IRB’s efforts to go after past-due taxes,” Pickering said.  “The Bureau will continue to contact delinquent taxpayers and attempt to obtain payments through the statutory collection methods.”

 

Attorney Tom Bolt is Managing Attorney and Chair of the Government Relations Practice Group at BoltNagi, a respected and well-established business law firm serving businesses and organizations throughout the U.S. Virgin Islands.

Why the US Virgin Islands Needs to Enact UCC-9 (2010)

Posted in Corporate & Financial Services
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To date, all 50 states, the District of Columbia and the Commonwealth of Puerto Rico have enacted the 2010 Amendments to Article 9 of the Uniform Commercial Code (UCC). However, the U.S. Virgin Islands is still the only jurisdiction not to enact those amendments, an issue that has drawn criticism over the past several years.

The final jurisdiction to enact the amendments was Oklahoma, back in June 2015. Since then, the U.S. Virgin Islands has been the sole remaining American jurisdiction to not make the amendments official.

Article 9 of the UCC regulates secured transactions of personal property, including the granting of credit that is secured by the applicant’s personal property. Every year, there are hundreds of millions of dollars in consumer and commercial credit granted by use of secured transactions under rules specifically outlined in UCC Article 9. These rules could apply if a manufacturer finances its purchase of new equipment, a retailer applies for financing of additional inventory or if a consumer gets financing for upgrades to a home.

There are rules in the UCC-9 that govern any transaction — aside from financial leases — that involve granting credit paired with potential creditor interest in the debtor’s property. In the event that the debtor defaults on the loan, the creditor could take possession of that property and sell it to repay the debt. This is called a “security interest.” UCC Article 9 outlines who has the first rights to this collateral if there are multiple creditors competing for having their loans repaid.

Amendments to UCC9

The 2010 amendments to UCC-9 made some changes to respond to various filing issues and a number of other matters that arose since the most recent revisions in 1998. The most important update is that now there is greater guidance regarding the name of debtors that will be provided on financing statements. As a result, each state has two choices:

  • Alternative A: If the debtor has a state-issued driver’s license where the financing statement is filed, the debtor’s name as it is included on the license will be included on the financing statement in the exact same format. If the debtor does not have a license, either the debtor’s surname and first personal name or the debtor’s actual name may be used in financing.
  • Alternative B: The debtor’s name as indicated on the driver’s license, the debtor’s actual name or the debtor’s surname and first personal name are all allowed to be used on the financing statement.

These amendments make the filing system for financing statements easier to understand and more organized. By not having approved these amendments yet, the U.S. Virgin Islands is allowing this process to be more complicated than it needs to be.

For more information on UCC-9, its amendments and the potential changes that could result from them here in our territory, consult a skilled corporate planning attorney.

 

Attorney Tom Bolt, Managing Attorney of BoltNagi, a widely respected and established business and corporate law firm offering counsel to a wide range of clients throughout the U.S. Virgin Islands is also a Commissioner of the National Conference of Commissioners on Uniform State Laws.