The U.S. House last week approved a renewal of a $13.50 per-gallon tax on rum produced in Puerto Rico and the U.S. Virgin Islands.
The legislation now moves the Senate.
Currently, the two territories receive $13.25 of the $13.50 tariff that rum manufacturers pay to the federal government. The bill, HR 4213, would extend the tax through 2010. Without the renewal, the rate drops to $10.50 per gallon.
Historically, Congress has extended the higher tax rate, although sometimes after the fee decreases to the lower $10.50 charge.
Last year, lawmakers renewed the $13.50 rate 10 months after it had expired on Dec. 31, 2007. The rum-tax revenue is sometimes called matching-fund revenue or cover-over revenue.
Puerto Rico has nearly $2 billion of rum-tax bonds outstanding through the Puerto Rico Infrastructure Financing Authority. Bacardi & Co. is the major rum producer in the commonwealth.
The island received substantial rum-tax receipts in fiscal 2009, which ended June 30, and expects to receive more such funds in fiscal 2010, according to the Government Development Bank for Puerto Rico, the island’s financial adviser.
The U.S. Virgin Island Public Financing Authority this year sold two subordinate rum-tax bond deals for a new distillery for Diageo PLC, maker of Captain Morgan rum, and also for upgrades to a Cruzan VIRIL Ltd facility.
The infrastructure developments will generate more rum production in USVI. The territory anticipates receiving $103.8 million of rum-tax receipts in fiscal 2010, which began Oct. 1.
The amount to increase to $226.3 million in fiscal 2012 and increase annually to $429.2 million in fiscal 2034, according to a Nov. 30 report from IHS Global Insight Inc. The VIPFA has roughly $767.2 million of total outstanding rum-tax debt.