Hearings and Business Meetings
October 25, 2005
SD-366 Energy Committee Hearing Room 10:00 AM
Lieutenant Governor Vargrave Richards
TESTIMONY OF VARGRAVE A. RICHARDS, LIEUTENANT GOVERNOR OF THE UNITED STATES VIRGIN ISLANDS BEFORE THE UNITED STATES SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES ON BILL S.1831
OCTOBER 25, 2005
ENERGY COMMITTEE HEARING ROOM SD366
Good morning Mr. Chairman and members of the Committee. My name is Vargrave Richards, and I am the Lieutenant Governor of the United States Virgin Islands.
Under Virgin Islands law, the Office of the Tax Assessor falls under the Office of the Lieutenant Governor. The Tax Assessor is charged with generating the real property tax bills for the Territory of the United States Virgin Islands. One of the bills before this Committee, S. 1829, addresses the real property tax of the Virgin Islands.
I am here to respectfully request that you adopt Bill S. 1829 which repeals sections 1401 through 1401e of Title 48 of the United States Code, which I will refer to as the “1936 Statute”. I strongly support the Bill for three reasons: One, a recent court ruling held that the 1936 Statute prohibits the Territory from setting its own real property tax policy; Two, the 69 year old statute, which was designed to assist the Virgin Islands, now hinders it from performing a basic governmental function; and Three, this is a purely local issue with no federal impact.
The reason I am here before you is a recent court ruling which has essentially revived a long forgotten federal statute governing the assessment of real property taxes in the Territory.
On June 28, 2004, the United States Court of Appeals for the Third Circuit issued an opinion affirming a decision of the United States District Court of the Virgin Islands in Berne Corp. v. Government of the Virgin Islands, 2004 WL 1443889 (3d Cir. Jun. 28, 2004).
The courts held that the 1936 Statute is still controlling in the Virgin Islands, and that it governs the basis for assessment for real property taxes in the Territory, preempting subsequent local laws in this area. Based on the 1936 Statute, the court ordered that all property subject to taxation be taxed on the basis of actual value and at the same rate. Under the ruling, to be valid, an exemption must grant a 100% percent exemption from taxation, cover the full tax year of the exemption period, and apply to all of the subject property.
The effect of the ruling is far reaching. It limits the Virgin Islands in performance of the basic government function of setting real property tax policy. Based on the ruling, a federal law precludes our local government from establishing partial tax exemptions for veterans, the elderly or farmers, and from using tax policy to encourage development through the creation of enterprise zones.
To my knowledge, no State or Territory has such restrictive provisions imposed upon it by Congress.
For example, under a local law enacted to encourage agriculture, farmland was 95% exempt from property taxation. Under the new court ruling, this exemption is no longer valid because it is not a 100% exemption.
Similarly, the general homestead exemption, and the specific homestead exemptions for veterans and the elderly, as well as Enterprise Zone tax exemptions, would only be valid if they were to provide a full exemption from taxation. Based on the court ruling, the Guaranteed Housing Rehabilitation Loan exemption is also invalid.
Another critical provision of Virgin Islands law is at stake as well. In order to protect homeowners in the Territory from losing their land due to inability to pay property tax increases resulting from a dramatic rise in property values due to outside investment, local law provides that no residential tax bill can increase more than 10% over the previous valuation. This crucial provision was also struck down by the courts.
The problem of rising land values is particularly acute on the Island of St. John, two thirds of which is National Park. Recent development has generated increased property values and therefore higher property taxes. Many Virgin Islanders fear losing land which has been in their family for generations because of the inability to pay increased property taxes. Since the days of emancipation, in our islands, land has been a precious commodity which has traditionally passed from generation to generation.
Unless Bill S. 1829 is adopted, the Virgin Islands will not have the ability to reinstitute the 10% cap, or to employ other appropriate tax policy measures to address the legitimate concerns of these Virgin Islanders desirous of preserving their land for their children.
Unless Bill S. 1829 is adopted, the Virgin Islands will not be able to set different tax rates for different uses of property. While state and local governments are free to set different tax rates for differing uses of property, such as residential, agricultural, commercial, income producing or charitable, the 1936 Statute prohibits our local government from doing the same.
In short, the 1936 Statute needs to be repealed in order to put us on par with other jurisdictions and enable us to set our own local tax policy.
The second reason the Bill should be adopted is that the 1936 Statute is an anachronism whose historical purpose is no longer served.
The Statute was adopted by Congress on May 26, 1936 to reform the real property tax system in the Virgin Islands which at the time was based upon the use to which property was put as opposed to its value. Cultivated or developed land was taxed at a higher rate. It was felt that this system was unfair to those who cultivated their land and the policy discouraged cultivation and also favored a few large land owners.
Today, the 1936 Statute as interpreted by the courts no longer assists the people of the Virgin Islands. To the contrary, it hampers our ability to make sensible tax policy.
A third reason to support the Bill is that this is a local issue with no impact on the federal treasury. The adoption of S. 1829 and the consequent repeal of the 1936 Statute will have absolutely no economic effect on the federal government. Like state and local property taxes, Virgin Islands real property taxes are imposed by the Territory and are payable to the Territory. This is a local matter. It is not a federal tax question.
In 1936, the Virgin Islands were closely administered by the federal Government. There has been a steady progression toward local autonomy in an effort to move from colonialism toward self governance. In 1954, Congress passed the Revised Organic Act which established a framework for Virgin Islands self-government. In 1970, Virgin Islanders elected their own Governor for the first time.
The old 1936 tax Statute severely impairs the ability of the Government of the Virgin Islands to set real property tax policy. The Virgin Islands legislature should be able to grant partial real estate tax exemptions to encourage farming, economic development, and the creation of homesteads, and to provide tax relief for veterans, the elderly and the disabled.
The provisions of the old 1936 Statute that might have been viewed as necessary by Washington in 1936, now bind the hands of the Virgin Islands Government and prevent it from enacting socially and economically beneficial legislation. While it is the Government’s position that the 1936 Statute was repealed by the Revised Organic Act of 1954, the court ruling provided otherwise, making an express Congressional repeal necessary to achieve the goal of self-government for the Territory.
I would like to thank the Honorable Congresswoman Donna M. Christiansen for sponsoring the legislation.
Senators, I respectfully request that you adopt Bill S. 1829 and repeal the old and outdated 1936 federal Statute. I thank you for your time and attention to a matter of great importance to the people of the Virgin Islands.