Oct. 25, 2004 The Economic Development Commission has entered into a settlement agreement with Innovative Telephone, formerly Vitelco, despite the opposition of two senators.
Frank Schulterbrandt, chief executive officer of the Economic Development Authority, the umbrella company of the EDC, said Monday the agency has agreed to accept $500,000 from Innovative for its failure to comply with several regulations of its EDC package.
"The major issue was meeting their employment requirements," Schulterbrandt said.
The company was supposed to have employed no fewer than 421 full-time employees, of which at least 80 percent were required to be V.I. residents, as part of its previous benefit package, which expired in September of last year.
Innovative was also required to provide its employees with health, dental, life and accident insurance; 401(k) retirement-savings plans; and an employee stock ownership plan.
These and several other requirements had to be met in exchange for full exemption from gross receipts taxes, real property taxes and excise taxes on the importation of raw materials and component parts used in its production process and of building equipment and machinery. Innovative also received 90 percent exemption on V.I. income taxes and full exemption on withholding tax on dividends and interest.
According to Sen. Adlah "Foncie" Donastorg, who opposes the settlement, these exemptions amounted to $40 million in tax breaks for a period of five years for the company, which had long been suspected of the violations.
The EDC launched its investigation on Innovative when the company applied for a renewal of its benefit package earlier this year. Schulterbrandt had said then that companies seeking extensions must be in compliance.
In a letter from Innovative's attorney Joel Holt dated Aug. 17, the company requested that they pay the $500,000 in installments – an initial payment of $200,102.10 and four additional payments of $68,750 in November of this year and February, May and August of 2005.
Holt further stated in his letter that Innovative was "accepting the proposal without admission of fault."
Sen. Louis Hill, who had written to Dean Plaskett, chairman of the EDC board, urging them not to settle with Innovative, said Monday, "No business would be so benevolent as to pay a fee without having been at fault." He added its consent to pay the fee shows that Innovative was indeed in violation of the benefit requirements.
"It's unfortunate to the taxpayers," Donastorg said Monday. "The EDC should have sought more money than that."
In a news release issued Oct. 13, Donastorg had said the government should not settle with Innovative but rather the company should be held liable for the full $40 million in exemptions that it received.
"While all of us have been working hard and paying taxes," Donastorg said. "Vitelco and [Innovative Communications Corp.] have been enjoying these tax breaks without offering us anything in return but lost jobs and busy circuits." Donastorg referred to the strike in November of 2002, where several Innovative employees were replaced and were not given their jobs back. (See "Donastorg: Mass Phone Company Firings Won't Do").
Schulterbrandt said Innovative's renewal application has not been acted on because it is still pending a public hearing.
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