History of the Rum Cover-Over Program

The rum cover-over program dates back nearly a century and rebates excise taxes paid by rum producers in the U.S. territories back to those territories’ governments for economic development. The Virgin Islands Economic Leadership Council commends Governor John deJongh for using this program as intended and securing 30 years of steady revenue for the U.S. Virgin Islands.

The U.S. Virgin Islands, along with the other U.S. territories, does not receive the same federal funding and economic benefits as states. This makes it much more difficult to weather an economic storm when local revenue declines – as has happened during the current recession, which caused a 30 percent drop in government tax receipts. To make up for this, Congress created an economic tool to help us take advantage of our local strengths by empowering us to bolster our economy on our own terms. We are using this tool to boost a core local industry—rum making—and invest in business growth.

The U.S. Virgin Islands’ agreements utilize the rum excise tax cover-over program, first created 90 years ago and opened to the U.S. Virgin Islands in 1954. Rum makers pay excise tax on rum imported to the U.S. mainland from the territories (as well as from foreign countries), with a majority of that tax revenue rebated to the territories based on their production levels. The territories are then given the authority to reinvest this revenue back into their economies to spur local business activity.

In January 2010, the official, non-partisan Congressional Research Service issued an independent analysis reconfirming the value of the cover-over program. The study found that:

  • The U.S. Virgin Islands is capitalizing on the cover-over program in the way Congress originally intended, to grow the local economy.
  • Cover-over revenue is considered local revenue, not federal funds or money from the pockets of U.S. taxpayers.
  • Legislation to dramatically change the cover-over program, introduced by Puerto Rican officials and other members of Congress who are aligned with Puerto Rican interests, would not only harm the U.S. Virgin Islands’ economy, but Puerto Rico’s economy as well.
  • Attempts to put an arbitrary cap on the amount of cover-over money that can be invested in the rum industry (Puerto Rico’s H.R. 2122, introduced by Puerto Rico Resident Commissioner Pedro Pierluisi, and S. 3208, introduced by New Jersey Senator Robert Menendez), or to reallocate cover-over funds based on the territories’ populations regardless of the territories’ rum production levels (proposed amendment by Florida Senator George LeMieux), go against Congress’ original intent for the program.