Rum tax battle heats up

A dispute over a Caribbean rum distillery is heating up in the Senate as Puerto Rican officials begin a lobbying blitz this week.

Puerto Rico and the U.S. Virgin Islands have been locked in a battle over the latter’s agreement with British-owned liquor brand Diageo since late 2008. The Virgin Islands offered the company a generous tax subsidy to relocate its plant that was based in Puerto Rico.

{mosads}Puerto Rico has since been up in arms and is lobbying furiously against the deal, saying it is an abuse of taxpayer funds. In turn, lobbyists for the Virgin Islands and Diageo have defended the agreement and pushed Congress not to wade into the battle, believing they will keep jobs within U.S. territory.

Last year, Rep. Charles Rangel (D-N.Y.), the chairman of the House Ways and Means Committee, declined to take up legislation that would cap subsidies that the Virgin Islands and other U.S. territories could offer to companies under the rum tax. But lobbyists for Puerto Rico, which favors such a bill, are hoping to have more luck in the Senate.

This week Puerto Rico Gov. Luis Fortuño (R) will be in town to meet with senators and discuss the rum tax battle. Puerto Rico’s Senate President, Thomas Rivera Schatz, will be in Washington at the same time to talk to lawmakers.

The meetings follow a series of letters that Fortuño has written to several members of the Senate Finance Committee, the upper chamber’s tax-writing panel, since December 2009. The lobbying blitz comes as Puerto Rico increasingly feels its longtime rum industry will crumble if the deal between Diageo and the Virgin Islands is allowed to proceed.

“The planned subsides imperil the entire Puerto Rico rum industry,” Fortuño writes in several of his letters to senators, obtained by The Hill, “and the additional revenue, the jobs, and the substantial spin-off economic benefits created by the industry.”

In turn, Virgin Island officials have argued that Congress should not interfere in their business dealings. They also say without the Virgin Islands stepping in, the company was going to take the jobs and revenue to a foreign country.

What both sides are fighting about is the deal reached between Diageo and the Virgin Islands. Under the deal, up to 50 percent of the Virgin Islands’ rum tax revenue will be spent on subsidies to the company, estimated to be $2.7 billion over the next 30 years.

Puerto Rico got behind legislation offered in the House by Puerto Rico Resident Commissioner Pedro Pierluisi (D) that would have capped rum tax money spent on the liquor industry by any U.S. territory at 10 percent.

In the Senate, Bill Nelson (D-Fla.) is considering offering similar legislation, but it is still under review.

“A number of lawmakers question the wisdom of using billions of dollars of American taxpayers’ money to build a rum plant in the Virgin Islands for a foreign company. We circulated draft legislation to gather input on whether and how to address the matter. Meantime, we’re continuing to review it,” said a spokesman for Nelson.

In the meantime, Sen. Jeff Bingaman (D-N.M.) is leading negotiations between Puerto Rico and the Virgin Islands to come to some sort of compromise over the rum plant. Bingaman, a Senate Finance Committee member, is also chairman of the Senate Energy and Natural Resources Committee, which has jurisdiction over insular affairs.

A Bingaman aide said the New Mexico senator is “urging both sides to settle their dispute.”

Helping to lead those negotiations between the two Caribbean territories is Allen Stayman, a committee aide who has decades of experience in insular affairs.