Home News Local news Innovative Defends Position on Tax Benefits

Innovative Defends Position on Tax Benefits


Dec. 2, 2004 – David Sharp, president of Innovative Telephone, led a team of lawyers and company officials in making a case at an Economic Development Commission public hearing on St. Croix Thursday for the telephone company to continue receiving tax benefits.
Sam Ebbesen, senior vice president, said that the EDC programs were able to grow because of what Innovative had done in recent years. He said, "EDC companies get tax benefits, but they would not be here if the infrastructure was not here."
However, not everyone on the Economic Development Authority was convinced that Innovative needed more tax benefits to do its job. Two members – Mary Ann Pickard and Randolph Allen – were especially intense in their questioning of the Innovative team.
Pickard said Innovative's application was an "insult to the Authority and to the people of the Virgin Islands." She said that what Innovative was promising to do for the Virgin Islands "is the same thing you promised to do 10 years ago." She suggested Innovative redraft its application.
While most of her concerns addressed contributions and investments the company promised to make to the community, Allen focused on employees of the company. He asked how the company could now be projecting fewer employees than it had before, and then asking for tax benefits in a program that is designed to promote more employment in the Virgin Islands.
He also raised concerns that many of the employees listed in Innovative's application were employees not directly related to the phone company's main business, but working in cable and Internet sister companies.
He told Sharp this appeared to give Innovative an unfair advantage over competitors. He said if the Authority granted tax breaks to Innovative, how could it justify not granting them to other Internet and cable providers?
Sharp said last year was the first year that the number of people getting land telephones actually decreased. He said Innovative was experiencing negative growth in that area.
Pickard said she had called the phone company to ask about installing a new line and was told that it could not be done until Dec. 23. She said, "There is something wrong here. You can't say there is no work, and I have to wait until Dec. 23 to get work done."
Pickard also questioned Sharpe about a perceived agreement between Innovative and the Public Services Commission that, if the Commission granted Innovative a rate hike, Innovative would not return to the Economic Development Authority and request a continuation of its tax breaks.
Sharpe said, "I am aware of that debate." However, he said it was never worded as many people were now saying it was. He said that Innovative at the time informed the PSC that Innovative "had no plans" to return to EDA to ask for tax benefits.
However, he said that changed when Innovative lost about $4 million in a subsidy it gets from Universal Systems to supply service at low cost.
Sen. Louis Hill was one of three testifiers opposed to extending the tax benefits to Innovative.
Hill said, "The government is not in any position to offer tax benefits to a company that is clearly profitable."
He said that Innovative enjoyed three advantages other EDC companies did not – guaranteed rate of return, a large annual subsidy and a monopoly status.
Sharp disagreed with Hill about the guaranteed rate of return. However, in his testimony, he appeared to justify the need for tax benefits by claiming what he called "under-earning." He said the PSC allowed Innovative to have an 11 percent rate of return. He said before the recent rate increase, Innovative was getting only a 6 percent return. He said this amounted to over a $9 million dollar shortfall. He said Innovative would recoup about $5 million of that with its rate increase but then found that the subsidy from Universal would be $4 million lower than anticipated and that Innovative would still be "under-earning" and that was why Innovative was requesting the tax benefits.
Hill also complained at money being invested by the company in a phone company in Belize. He said, "Why is that money not being invested in the Virgin Islands?"
When asked about this investment, Sharp denied any knowledge. This investment apparently is being made by Innovative's parent company, Innovative Communications Corp.
Frederick Joseph, a director of the United States Steelworkers, also testified, advocating that the tax benefits be denied. He referred to a Nov. 19, 2002 letter from Attorney Joel Holt saying that Innovative no longer wanted to participate in the EDC program.
Pickard questioned Sharp about how such a letter could be written. She said to Sharp, "I can't imagine your bookkeeping skills being as such to allow such a letter to be written."
Holt came forward to testify. He said the letter was written only because of concerns during the strike.
The third testifier was Arthur Joseph, a former employee of Innovative. He said that as long ago as 1997, "brave Virgin Islanders" were questioning whether Innovative was eligible for the tax breaks.
Sharp, in his opening remarks said what Innovative was requesting was a substantial decrease in what it had previously requested. He said it was not requesting benefits concerning income tax, and the two major components of this request were excise and real property taxes.
He said the tax benefits would allow the company to invest in its deteriorating infrastructure and add speed and reliability to its services.
He said, "It is clear that the extension and modification of benefits will play a role in the economic development of the Virgin Islands."
He said Innovative had a long history of community involvement. Allen said that the $1,000 scholarships offered to students by Innovative were very small: "Today, that might not even cover the costs of textbooks."
Local attorney Maria Hodge, in a letter read into the record, said with recent changes in the federal law governing EDC companies, there was a "particular urgency" now in denying the benefits to "anyone who doesn't need them." (For more on Hodge's letter, see "Phone Company Tax-Benefit Foes Gathering Strength").
Hill, Hodge, and Joseph each said that Innovative played a role as a good corporate citizen of the Virgin Islands, but that did not translate into the company's being eligible for tax benefits.
The Authority also held public hearings at the V.I. Port Authority Conference Room at St. Croix for Seaborne Airlines and three proposed companies – chemical, management and a purified water distributor.

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