St. Thomas Real Estate Trends

For those of you who have watched the ongoing scenario of EDC benefits (see deatails and links on our home page) here's the latest report from our Dailoy News:

"ST. THOMAS - The U.S. Treasury Department issued final source of income regulations that determine what income taxes should be paid to the V.I. government and what income taxes are owed to the federal treasury.

In 2004, provisions in the American Jobs Creation Act changed federal rules that apply to the V.I. Economic Development Commission's tax-incentive program.

The program's purpose is to promote investment in the territory by granting hefty income tax breaks for business owners who relocate to, or start businesses in, the Virgin Islands. Beneficiaries of the program can get exemptions on income taxes, gross receipts taxes, excise taxes, property taxes, and on withholding dividends and interest.

Following many alleged abuses of the EDC program by companies receiving V.I. tax breaks while conducting their business in the states, Treasury was charged with drafting specific regulations setting new strict proposed rules for residency and source of income. Those temporary regulations took effect in April 2005.

In January 2006, Treasury issued final regulations establishing that bona fide residents must be present in the territory for at least 183 days per year. Nearly a year later in November 2006, Treasury amended its residency regulations allowing more flexibility on how many days they need to be present in the territory.

The new requirement states that residents must be present within the territory an average of 183 days a year over a three-year period. Residents still must be present in the territory a minimum of 60 days within each given year.

On April 9, Treasury and the IRS submitted final regulations on source of income.

The final regulations are basically the same as the temporary rules put in place by Treasury that say taxes on income derived from within the mainland, or effectively connected to U.S. sources, should be paid to the U.S. Internal Revenue Service instead of the V.I. government.

One change in the final regulations clarifies questions on capital gain, which is the positive difference between the purchase price of an asset, such as a house or stock, and what it sold for.

U.S. Treasury's "special gain rule" allows an individual to treat capital gain as a source of income derived from within the territory, if any gain is attributable during the years he or she was a bona fide resident of the Virgin Islands.

Gains attributable while the individual was not a bona fide resident of the Virgin Islands would be considered U.S. source income.

Another change would allow some non-V.I. residents working in the territory on a temporary basis to file their taxes with the IRS, instead of the V.I. government.

To qualify for Treasury's "de minimis rule" such individuals must:

- Perform services in the territory on a temporary basis.

- Work within the territory for no more than 90 days during a taxable year.

- Receive no more than $3,000.

"The Treasury Department and the IRS agree that such a rule reduces taxpayer burden and promotes efficient tax administration," according to Treasury's 122-page submission to the Federal Register.

Another modification protects against double taxation in cases where it is determined that taxes paid to the Virgin Islands should have been paid to the IRS. The rule allows a credit on the federal tax liability that is equal to the amount of taxes incorrectly paid to Virgin Islands.

Local reaction to the final regulations was subdued.

Softening the rules on capital gain is a positive change, said Theodore Skokos Jr., chief executive officer of St. Thomas-based Clearwater Consulting Concepts LLLP. The company has been an EDC beneficiary since 2002 providing business management and consulting services.

However, the final regulations seem like a "non-event" because not much has changed since the temporary rules were put in place several years ago.

EDC beneficiaries that could not comply already have left, he said.

"Since 2004, the EDC program is still alive and well for those that can comply with the rules," he said.

There are about 100 beneficiaries in the program, according to the V.I. Economic Development Authority's web site. The EDA oversees the tax-incentive program.

Percervil Clouden, EDA's chief executive officer, did not return several calls from The Daily News during the last week for comment.

The changes were really minor, said Marjorie Roberts, a St. Thomas-based tax attorney.

"I'm glad they didn't make things worse," she said.

The final regulations still limit the full potential of the territory's tax-incentive program, Delegate to Congress Donna Christensen said.

She said Treasury and IRS have the authority to make more changes and allow more exceptions, but they opted not to exercise that authority."

If you are considering a legitimate business with local employees, an office and spending a majority of your time here in the USVI you should follow the rulings on our EDC benefits.