At exactly the same moment on St. Thomas two people buy 10 gallons of fuel. One is a mainlander in a big yacht and the other is a local cabbie (and a voter).
Who pays more tax to the V.I. government? The cabbie pays more than twice as much. The V.I. voter in this case pays about $1.70 a gallon or a little more, for the gas for the cab while the yacht owner pays $1.68 a gallon for the diesel fuel he uses. So that appears to be about even.
But the tax included in those prices is different; the cabbie (and all other drivers in the V.I.) pays 14 cents a gallon, while the yachtie (and other users of marine fuel) pays only a gross receipts tax of 4 percent, or, in this case, about 6.6 cents a gallon.
While the prices may be slightly different on St. Croix, the underlying tax system is identical — the yachtie pays less tax than the cabbie. Three points can be made here:
1. The V.I. is tilting the fuel tax system in favor of the wealthy outsiders, and against residents of all income levels (folks who drive cars).
2. The wealthy outsiders are probably providing the marina operators with a small windfall, as diesel and regular gas prices are generally pretty close to each other — so that maybe the marinas, not the yachties, are the ones getting the real break.
3. But most important, everyone in the V.I. is paying less — much less — in gas taxes than everyone on the mainland. Here are the numbers: Virgin Islands: auto gas tax – 14 cents/gallon. Virginia (an average U.S. state) – 37 cents/gallon. It should be recalled that the residents of the Virgin Islands pay no federal gas taxes and no federal income taxes. The taxes I pay on gasoline, in Arlington, Virginia, include: federal, 18 cents; state, 17 cents; and local, 2 cents.
Gas, including these taxes, is now about $1.28 a gallon in Northern Virginia. The next time I visit the Virgin Islands, and rent a car, I will pay only about one-third as much in gas taxes as I do at home. This island-mainland tax comparison creates a problem when representatives of the islands come to Washington to seek financial assistance from the federal government.
The feds on the other side of the table might very well take the posture (or at least think this thought): "We are open to helping the Virgin Islands financially, but your taxpayers are paying considerably less than our taxpayers in gas (and income) taxes. Why should the more heavily-taxed population (mainland taxpayers) give financial assistance to the more lightly-taxed population (V.I. taxpayers)?"
In short, were the territorial government to raise taxes on both yacht and auto fuel to something like the mainland levels, it would provide two benefits:
1. it would give a sustained and significant boost to the sore-pressed local Treasury and, 2. simultaneously, strengthen the hands of the governor and the delegate when they next negotiate with the feds.
There is a certain reassuring solidity in raising these taxes, as opposed, for example, to the proposed deal with Tim Duncan and unknown friends; no IRS decision (that Tim Duncan really does not live in the V.I.) and no career-ending injury could stop the flow of additional gas taxes to the territorial government.
Raising gasoline taxes towards the mainland levels is complicated, of course, by the locally high gas prices brought about by a more expensive gas distribution system than we have in the States, where gas price wars (reflecting genuine market competition) are frequent.
I do not know if the gas distribution system in the V.I. is less efficient, or more collusive, or both, but the upshot is that it is tough to rationalize the gas tax situation — important, but tough. (I understand from the Source of Jan. 5 that an investigation of high local gas prices may be underway.)
As to the politics of raising the marine tax to the road tax levels, an objection will surely come from fishing and ferry boat operators that they do not use the roads, and thus should not be asked to help with any part of the V.I.'s continuing financial crisis. If local decision-makers want to buy that argument (as I would not) they can handle the problem simply by giving V.I. taxpayers in specified marine businesses a dollar-for-dollar tax credit at income tax time.
If the fisherman pays $100 a year in additional marine gas taxes and can document it, then he can pay $100 less in income taxes. It would be a wash for him, but that yachtie from the mainland would get no similar rebate.
Editor's note: David North, a former assistant to the U.S. Secretary of Labor, is chairman of the Board of Tax Appeals in Arlington County, Va.


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