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Congressional lawmakers submit legislation to modify rum cover-over

U.S. Sens. Bill Cassidy (R-LA) and Bob Menéndez (D-NJ), along with U.S. Reps. Jenniffer González-Colón (R-PR-AL) and Stacey Plaskett (D-VI-AL) have reintroduced legislation to modify the amount of money transferred to Puerto Rico and the U.S. Virgin Islands — known as the “rum cover-over”— from the excise taxes collected on rum that is produced in or imported into the rest of the United States from the two U.S. territories.

“The rum cover-over has long been critical funding for Puerto Rico and the U.S. Virgin Islands, but it continues to face funding cliffs that create uncertainty and jeopardize investment,” said Cassidy. “Just as Louisiana uses offshore energy revenue sharing to restore our coasts, these territories use this revenue to reinvest in their communities.” 

Under current law, excise tax collections on imported rum are transferred to Puerto Rico and the USVI at the rate of $13.25 per proof gallon; $10.50 per proof gallon is in permanent law, and the remaining $2.75 per proof gallon requires periodic reauthorization by Congress.

This legislation would amend Section 7652 of the Internal Revenue Code of 1986, making $13.25 per proof gallon the amount covered over by law, eliminating the need for congressional action, and enhancing long-term sustainable economic growth in the two U.S. territories, lawmakers said.

“The rum cover-over is a critical tool to promote economic development and create good paying jobs in Puerto Rico and the U.S. Virgin Islands,” said Menéndez. “Our bipartisan, bicameral legislation would eliminate the limitation on funds returned to Puerto Rico and the U.S. Virgin Islands for the production and transportation of rum to the mainland United States, ensuring these two territories benefit fully from the taxes on rum sold in the continental U.S.”

“This bill would also ensure that a portion of the funds covered over to Puerto Rico will be transferred to the Puerto Rico Conservation Trust Fund to support the island’s sustainability and conservation efforts,” the senator added.

The Conservation Trust is a private, nonprofit organization that provides for the conservation of natural areas on the island, including through sustainable agricultural efforts, projects that promote the reforestation and restoration of natural habitat, and the development of educational programs that foster the protection of natural areas.

“Our rum industry in Puerto Rico has great economic impact, more than 70% of the rum that is consumed here in the United States, and 80% of the rum consumed around the world is made in Puerto Rico,” said González-Colón.

“Annually, we receive more than $330 million from the rum excise tax cover-over, which has been vital to supporting critical services, including health care, education and public safety, and funding environmental and other conservation initiatives,” she said.

“This increase is vital to address uncertainty both Puerto Rico and USVI have experienced, including funding cliffs on several occasions, and ensure resources continue reaching our community,” the island’s resident commissioner said.

Plaskett said that the cover-over “has been part of the fundamental tax relationship between the United States and its territories going back over a century. This bill would repeal the limit that has been imposed on the program since 1984. That will help to provide essential public services and to encourage production and employment on the islands as we recover from pandemic and economic downturn.”

The USVI delegate added that the related “revenue is a significant source of well-paying jobs on our islands of the United States” and that to “continue to support this vital part of our local economies, I am pleased to co-sponsor this rum cover-over permanency legislation with my colleague, Rep. González-Colón.”

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This story was written by our staff based on a press release.

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