Got a little Captain in you? Your taxes may soon...

Captain Morgan, one of the leading rum brands in the World, has been courted by St. Croix, a US Virgin Island.

Recruiting businesses to an area for economic development is a common business practice by municipalities and it often includes tax breaks and other perks to get the business into town.  However, the $2.7 billion offered to the Diageo owned brand of rum, might be the largest in history and has created quite an uproar from Puerto Rico where the distillery was previously based.

$2.7 billion!  Assuming a $20 handle of Captain (not including your favorite mixer, I prefer Sprite with my Captain) that would be 135,000,000 handles to equal $2.7 billion!

The freighting aspect is the impact that it will have on the Puerto Rican economy.  According to a New York Times article, “the deal could also cost American taxpayers.  With Puerto Rico’s economy reeling and its government budget already strained, some island officials say they cannot rule out needing to ask Washington for aid to cover basic expenses once covered by the rum tax.”

So, we will have to pay taxes on the drink when we originally purchase it at a restaurant or a liquor store, but a second time with our federal taxes to help take care of the Puerto Rican economy.  I think we should all be given air vouchers to Puerto Rico so we can go and spend our money, maybe on some rum, to stimulate their economy.

Officials of Diageo state that the concessions of this magnitude were needed to keep the company from moving out of the United States all together as the two inked a 30-year deal.

We often hear of a “sin tax” for cigarettes, sodas, or even liquor.  But, this would be a unique sin tax if it is deemed necessary.  In this case, the benefactor of the sin tax would strictly be the Puerto Rican economy.  Captain Morgan is the Lebron James of the liquor world and the Virgin Islands are the Miami Heat.  They courted the Captain and made the winning offer and will profit greatly.  Meanwhile, can the Puerto Rican government find income sources so that we the tax payers don’t need pay for this move?

I would prefer to continue paying at the bar or the liquor store.

The Virgin Islands have not wasted time in making the most of their new income source.  In July, they announced a $400 million bond sale that was backed by the rum taxes to help them make up a deficit in their budget due to lack of tourism.  I think with the new Captain distillery, tourism will start to pick up in 2012.

Got some Captain in you?  Hopefully, you won’t have it in your taxes!

-david rocci

Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Posted To: Tax Rants by David Rocci By: David Rocci On: Wednesday, October 20, 2010
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