In a controversial move, U.S. Virgin Islands Governor John deJongh has vetoed a bill that would have widened the variety of businesses at Kingshill’s Research and Technology (RT) Park deemed eligible for considerable tax breaks.
The tax breaks are incentive benefits bestowed by the RT Park to its tenants at the park, preventing them from having to pay gross receipt taxes as well as significantly reducing their corporate income tax liability.
The RT Park was initiated in 2002 through territorial legislation, establishing self-sufficiency 10 years later. The intent of the Park was to provide tax incentive benefits to business tenants that qualified under the law’s definition of either “electronic commerce businesses” or “knowledge-based businesses.”
However, the Governor and opponents have doubts about the program’s true impact on the Territory’s economic development, concerned that the Territory is being deprived of millions of dollars in gross receipt tax revenues. When questions about the distribution of the RT Park’s tax incentive benefits were raised seriously last fall, U.S. Virgin Islands Attorney General Vincent Frazer began issuing legal opinions about which businesses actually qualified for the benefits.
Frazer found that cable television providers and Internet service providers, both businesses that were included in the tax break program, do not actually qualify as “knowledge-based” or “electronic commerce” organizations. The Attorney General also found that the RT Park was in the wrong for offering benefits to virtual tenants, or businesses not leasing space in the physical 64West Center building.
Among the businesses determined to wrongly benefit were of the three largest telecommunications companies in the U.S. Virgin Islands — Broadband VI, Choice Communications and Innovative Internet & Cable. None of them lease actual space from 64West Center, operating instead out of off-campus facilities.
However, these newly affected tenants have raised questions of their own. When they formed their relationship with the RT Park several years ago, there was no actual office space available for lease. In fact, 64West Center, the Park’s only physical office building, was not built until last year. These companies have expressed surprise that their benefits have been pulled due to circumstances beyond their control, claiming that they’ve done everything right and followed the rules exactly. However, they are still being punished by these recent decisions by the Attorney General and the Governor.
Governor deJongh says his main concern is maintaining the RT Park’s core values. The purpose of the tax break program was always to encourage economic development through selective incentives, and he says he fears that ignoring this mission in favor of what he terms “drafting errors” will cause much larger challenges in the years to come.
Over the past several years, the RT Park has been a positive economic development tool for various businesses in the U.S. Virgin Islands. It will be interesting to see if the organizations impacted by these recent decisions will be able to change the minds of public officials opposed to their inclusion in the program.
BoltNagi is a widely respected and well-established corporate and business law firm serving organizations throughout the U.S. Virgin Islands.