February 9, 2018 - Early this morning, both houses of Congress approved the "Bipartisan Budget Act of 2018," complex legislation that includes important modifications to an arcane law known as the "rum cover over," which is an important revenue source for the Commonwealth of Puerto Rico and the US Virgin Islands (USVI).
The temporary excise tax relief provided to distillers in the 2017 federal tax reform law will not diminish the amount of federal excise tax revenue covered over to the treasuries of Puerto Rico and the USVI. The 2017 tax reform law included a two year reduction in the federal distilled spirits excise tax rate from $13.50 per proof gallon to $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and $13.34 per proof gallon on the next 22,130,000 proof gallons produced by each distillery or each controlled group of distilleries. The 2018 Budget Act treats all rum subject to the rum cover over as if it is subject to the full $13.50 per gallon excise tax rate.
A six year extension of the "temporary" $2.75 per proof gallon of rum cover over payments for Puerto Rico and the USVI is also included in the 2018 Budget Act. The temporary payments expired on December 31, 2016. The six year extension is retroactive, and it begins on January 1, 2017 and ends December 31, 2022. The temporary payment is in addition to a cover over of $10.50 per proof gallon that is already provided in the Internal Revenue Code.
Taken together, the two cover over amendments ensure that the governments of Puerto Rico and the USVI will continue to receive cover over payments totaling $13.25 per proof gallon for rum intended for beverage use that is brought into the United States from Puerto Rico and the USVI between January 1, 2017, and December 31, 2021.
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