After six grueling hours of questioning, Gov. Albert Bryan’s nominees to head the Bureau of Internal Revenue and the Department of Property and Procurement received unanimous votes from the Senate Rules and Judiciary Committee on Thursday.
BIR Director nominee Joel Lee received seven affirmative votes during the hearing in the Earl B. Ottley Legislative Hall on St. Thomas. Lee, a 20-year accounting veteran, began his accounting career in Washington D.C., returned to the territory in 2012 to work as a financial analyst in the Bureau of Internal Revenue, and ran his own private accounting practice from 2014 until the Bryan administration tapped him for the tax bureau post.
Lee said the most difficult question he faces is when taxpayers can expect their refunds.
“‘I don’t know’ is just not a feasible answer anymore,” he said.
According to Lee, if confirmed, he would address the cash flow problem contributing to the delayed refunds by ramping up the collection of some $360 million in taxes owed to the Virgin Islands government.
“Currently, we have approximately $360 million dollars in outstanding taxes owed to us and approximately $125 million dollars in total refunds owed to taxpayers,” Lee said. “Of the $125 million owed, approximately $50 million is properly processed and ready to be paid, once funds are available.”
Shifting the bureau’s focus to collection is in the plan, Lee said. The bureau has been tied up with non-collection activities, he said, like verifying that payments were made or that returns were filed, but not aggressively collecting taxes. Lee said modernizing the bureau’s computer system is one way to do that.
Lee urges delinquent taxpayers to sit down with tax officers to reach a resolution, but he also has a warning for those insistently refusing to pay taxes.
“I plan on using many if not all of the tools available to me to track down and pursue your assets in order to collect your outstanding tax balance,” he said. “I really encourage you to come and discuss your options before the bureau takes collection actions against you.”
According to Lee, his team is also analyzing data from the Department of Licensing and Consumer Affairs to cross-check businesses with no record of any tax filings, paying particular attention to the new businesses involved in the recovery efforts or working with the major contractors in the territory.
According to Lee, two developments are creating uncertainty with the territory’s tax collection revenues, which account for most of the Virgin Islands’ income stream. The Tax Cuts and Jobs Act of 2017 is projected to reduce individual income taxes by 20 percent and corporate taxes by 42 percent in the next five years, according to Lee. The calculations, however, were done based on pre-hurricane tax revenues.
“I reiterate these estimates are based on pre-hurricane figures, and the unexpected boost in the economy due to the recovery process may change the estimates for the better,” he said.
Lee cautions that the territory might also see hurricane-related losses that may drive tax revenues down, but until tax returns are filed in April 15, he said it is difficult to predict the territory’s tax revenues.
The halted collection of excise taxes is also putting a strain on the territory’s tax revenues, Lee said. In fiscal year 2018, excise taxes resulted in some $39 million in revenue, and from the beginning of fiscal year 2019 until the court-ordered stop date of Nov. 15, 2018, the bureau collected $9.2 million in excise taxes. Between then and Feb. 20, however, the Virgin Islands lost some $11.5 million dollars they had anticipated collecting, or $145,000 per day.
“We truly are hurting because this comes at a time when a large number of materials and goods are coming through our ports to satisfy recovery demands,” Lee said. “This problem came about because the bureau charged excise tax on products coming in to the territory and were not charging local manufactures an excise tax as stated in the Virgin Islands Code.”
Lee said the bureau has submitted the amended rules and regulations on excise tax collection procedures to include goods manufactured in the Virgin Islands. The Office of the Attorney General, he said, has also requested an emergency hearing on the matter.
Property and Procurement
Anthony Thomas, commissioner nominee to the Department of Property and Procurement, also received a unanimous nod from the Senate Rules Committee.
Lawmakers raised concerns about the V.I. government’s extensive and lengthy procurement process that sometimes involves up to five lawyers reviewing contracts, but Thomas said while the process may be cumbersome, there is no way around it.
“The approval steps are directed within the government as it relates to the way the code is written,” Thomas said. “Some of it preference and some of it is mandated by executive order. The federal government may not like the steps, but in order for the federal government to approve of what we do, we must follow our steps as the law dictates.”
Senators said the government leases too many private properties to house its departments, but Thomas said that while owning can save hundreds of thousands in annual rent for one agency, it can also entail millions in expenses that can take more than a decade to recoup.
“In the business of management administration … leasing and contracting is cheaper than actually owning your own. However, there is an appetite to transition into our ownership of the buildings that we use,” said Thomas, adding that while the task is not impossible, there will be a cost associated with the transition that the government may not be able to afford upfront.
Thomas said in the short term, he aims to address employee morale issues, make sure all contracts and agreements are up to date and account for all property of the Virgin Islands government. He also wants to make sure all tenants of government properties comply with the terms of their leases, that leases are continuously reviewed and rent collections are enforced.
In the long term, Thomas said his department aims to train local agencies on the procurement process, identifying seven “critical agencies” so far, including Human Services and Health. Thomas also aims to implement an electronic procurement and contracting system that can reduce the amount of time gathering documents and making needed revisions.
The nominations of both Lee and Thomas will head to the Committee of the Whole for further review.