80th Congress 
1st /Session 
SENATE 
Calendar No. 498 
j Report 
\ No. 476 
DISPOSITION OF INTERNAL REVENUE COLLECTIONS ON 
ARTICLES PRODUCED IN THE VIRGIN ISLANDS 
July 11 (legislative day, July 10), 1947.—Ordered to be printed 
Mr. Millikin, from the Committee on Finance, submitted the 
following 
REPORT 
[To accompany S. 1014] 
The Committee on Finance, to whom was referred the bill (S. 1014) 
to provide for the disposition of internal revenue collections on articles 
produced in the Virgin Islands, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass. 
The amendment is as follows: 
Strike out all after the enacting clause and substitute the following 
language: 
That subchapter B of chapter 28 of the Internal Revenue Code is amended by 
adding to section 3350 thereof the following new subsection: 
“(c) Disposition of Internal Revenue Collections.—The Secretary of the 
Treasury shall determine the amount of all taxes imposed by and collected during 
the previous month under the Internal Revenue laws of the United States on 
articles produced in the Virgin Islands of the United States and transported to 
the United States. The amounts so determined less one percent and less the 
estimated amount of refunds or credits, shall be transferred and paid over each 
month to the Government of the Virgin Islands and shall be available to the 
Virgin Islands for expenditure as the Legislative Assembly of the Virgin Islands 
may provide: Provided, That the total amount so transferred and paid over in 
any one calendar year shall not exceed $500,000.” 
Sec. 2. This Act shall become effective on and after the 30th day following 
the date of the enactment of this Act. 
PURPOSE OF BILL 
The purpose of the bill is to provide an additional source of revenue 
for the expenses of the government of the Virgin Islands. It authorizes 
the proceeds of taxes collected under the United States internal revenue 
laws on articles produced in the Virgin Islands and transported to the 
United States, less 1 percent for administrative expenses and less the 
estimated amount of credits and refunds to taxpayers, to be paid over 
2 
DISPOSITION OF INTERNAL REVENUE COLLECTIONS 
to the government of the Virgin Islands each month, to be spent as the 
legislative assembly shall provide. 
Most of the Federal-aid programs extended to the States and the 
other Territories and possessions, such as those for vocational educa¬ 
tion and rehabilitation, soil conservation, hospital survey and con¬ 
struction, and highway construction, have not been extended to the 
Virgin Islands. The local government must itself finance any activi¬ 
ties along these lines, and must supply other essential government 
services in the fields of health, education, and public welfare. The 
economy of the islands, because of the nature of the natural resources, 
has always been predominantly agricultural and does not afford 
opportunities for raising substantial revenues through taxation. As 
a result, the services rendered by the local government have been at 
substandard levels and many necessary projects cannot be undertaken 
for lack of funds. The Congress has had to make appropriations to 
the Virgin Islands annually to meet the deficits resulting from expendi¬ 
tures in excess of revenues. 
In Puerto Rico, and in the Philippines before their independence, 
the proceeds of United States internal-revenue taxes collected on 
products of those areas shipped to the continental United States 
were made available to the local governments to meet governmental 
expenses. S. 1014 would adopt a similar procedure with respect to 
the Virgin Islands, and would permit the government of the Virgin 
Islands to supply essential government services on a more adequate 
basis. Enactment of the bill would do away with the necessity for 
annual deficit appropriations to the islands by the Congress. It 
has been thought advisable, however, to provide that not more than 
$500,000 may be transferred in any one calendar year; it is estimated 
that the average proceeds of the internal-revenue taxes collected on 
products of the Virgin Islands will not exceed $500,000 annually. 
The Department of the Interior has recommended enactment of 
the proposed legislation and the reports of the Department of the 
Interior and the Department of the Treasury follow: 
The Secretary of the Interior, 
Washington, July 2, 1947. 
Hon. Eugene D. Millikin, 
Chairman, Committee on Finance, 
United States Senate. 
My Dear Senator Millikin: I am glad to respond to your request for my 
views on S. 1014, a bill to provide for the disposition of internal revenue collections 
on articles produced in the Virgin Islands. In my opinion, enactment of this 
proposal is highly desirable and I strongly urge that your committee recommend 
such action to the Congress. 
The proposed bill provides that taxes collected under the Federal internal 
revenue laws on articles produced in the Virgin Islands and shipped to the United 
States, or consumed in the islands, shall be covered into the Treasury of the 
United States to the credit of the islands, and shall be available for expenditure 
there as may be provided by the local legislative assembly. I believe that this 
bill, if enacted, would be a major contribution to a sound economic future for the 
Virgin Islands. It would also grant to those islands a measure of economic 
justice since it proposes to adopt, with respect to the disposition of internal 
revenue taxes collected there, the same procedure which the Congress has in the 
past adopted with respect to internal revenue collections in the Philippines and 
in Puerto Rico. 
Basically, the economy of the Virgin Islands is agricultural. Many factors, 
such as inadequate rainfall, depleted soil, and lack of adequate Federal agricul¬ 
tural aids, have contributed to making agriculture in the islands a poor economic 
base. None of the other economic possibilities of the islands—tourist trade, small 
DISPOSITION OF INTERNAL REVENUE COLLECTIONS 
3 
industry, handicrafts—is as yet so developed, or appears likely to be sufficiently 
developed in the immediate future, as to provide the islands with a revenue-pro¬ 
ducing base capable of making them self-supporting. This situation has existed 
for some time, and as a result, the revenues available through local taxation for 
meeting the costs of government are so meager that essential governmental services 
have had to be maintained at substandard levels. The municipalities of the 
islands, for example, have consistently devoted every available dollar, year after 
year, to providing aid to their needy. In the last 12 years annual budget alloca¬ 
tions for such aid have more than doubled. The proportion of annual public 
expenditures devoted to health, education, and welfare, which is more than 50 
percent, compares favorably with the mainland average. Despite these efforts, 
however, public assistance grants to the needy in the islands are almost unbeliev¬ 
ably low—a person qualifying for welfare aid receives an average of approximately 
$4.62 per month. 
In view of the limited financial resources of the municipalities, the Congress, 
since the purchase of the islands in 1917, has made appropriations for the conduct 
of the government of the Virgin Islands. These appropriations have included 
yearly sums to cover the salaries of administrative officers, and to make up local 
deficits caused by the excess of current expenditures over current revenues. In 
addition the Congress has appropriated sums for public works, relief, and other 
activities for the benefit of the islands. 
With the repeal of prohibition in 1934, and the revival of the rum industry, the 
islands for the first time began to contribute funds to the Federal Treasury in the 
form of internal revenue collections. As of December 1946, the total of these 
collections on articles produced in the islands, some $56,000,000, was approx¬ 
imately $7,000,000 more than the total amount spent by the United States for 
purchase of the islands, deficit and other annual appropriations for the local 
government, public works, relief grants and other Federal activities. It is 
significant to note that the Virgin Islands have not enjoyed the benefits of the 
overwhelming majority of Federal-aid programs made available to the 48 States 
and to the other Territories and possessions. The islands receive no Federal aid 
under the Federal Airport Act, the Soil Conservation Act, the Vocational Educa¬ 
tion Act, the Vocational Rehabilitation Act, the Hospital Survey and Construction 
Act, or the Federal Highway Act. None of the titles of the Social Security Act 
are applicable to the islands, except title V, which did not take effect there until 
January 1 of this year. 
Enclosed are a number of tables showing the amounts spent by the Federal 
Government on behalf of the Virgin Islands, the amounts collected there under the 
Federal internal revenue laws, and other related figures. As indicated by these 
tables, internal revenue collections increased abnormally during the war years, 
primarily because of the unusually good market for rum during that period. It is 
anticipated that in the postwar period the average annual internal revenue 
collections will be about $400,000 to $500,000, a level higher than the average in 
the immediate prewar period. 
I believe that the Congress should, by enacting S. 1014, make future internal- 
revenue collections available for meeting the expenses of the government of the 
Virgin Islands. Such action would make it possible for the government of the 
islands to maintain its essential services on a standard more in keeping with those 
expected of American communities. It would mean that the people of the islands 
could depend, for the support of their government, on revenues resulting from their 
productive efforts rather than on indefinite grants of Federal appropriations. 
It would also be in keeping with the congressional policy under which the Philip¬ 
pines and Puerto Rico have been permitted to retain internal-revenue collections. 
I have stressed on many occasions my belief that a basic policy of this Nation 
toward its possessions should be to help those areas along the road to self-suffi¬ 
ciency. Legislation such as S. 1014 affords excellent opportunity to implement 
that national policy. 
Since it is my understanding that your committee desires an immediate report 
on this bill, this report has not been submitted to the Bureau of the Budget for its 
consideration. I am unable to state, therefore, the relationship of the foregoing 
views to the program of the President. 
Sincerely yours, 
Oscar L. Chapman, 
Under Secretary of the Interior. 
S. Repts., 80-1, vol. 3- 
-48 
4 
DISPOSITION OF INTERNAL REVENUE COLLECTIONS 
Virgin Islands—Rum exports, estimated rum tax collections, and deficiency 
appropriations 
Year 
1935. 
1936. 
1937. 
1938. 
1939. 
1940. 
1941. 
1942. 
1943. 
1944. 
1945. 
1946. 
Proof gal¬ 
lons 
Federal internal revenue collections (estimates)1 
Deficiency appropria¬ 
tions 
St. Thomas 
andSt.John 
St. Croix 
64,844 
96, 555 
163,723 
127, 322 
181, 204 
383,810 
641,854 
808, 125 
1, 725, 533 
2, 661, 248 
929. 912 
690, 945 
$129,6881 
1 $90.000 
\ 80,000 
1 70,000 
60, 000 
40,000 
15, 000 
44, 933 
0 
0 
0 
0 
0 
$82,600 
95,000 
60,000 
50,000 
80,000 
50,000 
103, 500 
130,000 
159,800 
140, 000 
8 49,000 
150,000 
$327,4461 
$270,559, at $2 and $2.25... 
$407,709, at $2.25.. 
$1,007,501, at $2.25 and $3...-._ 
$2,086,023', at $3 and $4.... 
$3,506,023, at $4 and $6... 
$10,353,198, at $6... 
$21,219,807, at $6 and $9... 
$8,369,208, at $9... 
$6,218,505, at $9...... 
1 These collections are turned in to the general funds of the IT. S. Treasury and are not separately 
accounted, hence accurate figures are not available. 
* $100,000 appropriated; $51,000 returned. 
Comparison of internal-revenue taxes collected on rum imported into the United 
States from the Virgin Islands and paid into the Federal Treasury since 1934 with 
cost of the islands plus Federal-aid expenditures 
1. 
2. 
3. 
Internal-revenue collections on rum imports, 1934 through De¬ 
cember 1946___1 $55, 933, 285 
Purchase price of islands_$25, 000, 000 
Federal-aid expenditures: 
Direct congressional appropria¬ 
tions : 
Under naval administration, 
1918-31_ $4, 074, 620 
Under civil administration, 
1931-47_ 6, 263, 424 
Public works, 1945-46_ 
Federal-aid grants, 1933_ 
Ordinary expenditures by regular Federal depart¬ 
ments and offices, 1934-46 2_ 
10, 338, 044 
2, 210, 005 
11, 048, 919 
585, 852 
4. Total of items 2 and 3_ 49, 182, 820 
5. Excess of item 1 over item 4_ 6, 750, 465 
1 Estimate. These collections are turned into the general funds of the IT. S. Treasury and not separately 
accounted for. 
8 Does not include expenditures by Army and Navy. 
1933. 
1934. 
1935. 
1936. 
1937. 
1938. 
1939. 
1940. 
1941. 
1942. 
1943. 
1944. 
1945. 
1946. 
1947. 
Direct Federal appropriations for the government of the Virgin Islands 
Year 
Central 
adminis¬ 
tration 
$150, 613 
134, 750 
117,840 
131, 500 
130, 000 
120, 250 
127, 250 
127, 250 
142, 255 
151, 075 
167, 230 
186, 820 
208, 375 
203, 820 
228, 015 
Agricul¬ 
tural 
station 
$25, 000 
25,000 
29,968 
35,000 
35,000 
35,000 
38, 000 
38, 000 
41,150 
45, 650 
40,140 
46, 815 
47, 260 
36, 600 
45, 300 
Deficit, St. 
Thomas 
and St. 
John 
$112,032 
98, 500 
90, 000 
80,000 
70,000 
60,000 
40, 000 
15, 000 
44, 933 
0 
0 
0 
0 
0 
0 
Deficit, 
St. Croix 
$124, 355 
98, 500 
82, 600 
95,000 
60,000 
50,000 
80, 000 
50, 000 
103, 500 
130,000 
159,800 
140, 000 
i 49, 000 
150, 000 
135, 200 
Other 
purposes 
$15,000 
14, 350 
8 2, 210, 005 
8 993,795 
Total 
$412,000 
371,750 
334,758 
341,500 
295, 000 
265, 250 
285, 250 
230, 250 
331, 839 
326, 725 
367,170 
373, 635 
304, 635 
2, 600, 425 
1, 402, 310 
1 $100,000 appropriated; $51,000 returned. 
2 For public works projects authorized by the act of Congress of Dec. 20, 1944 (Public, 510). 
DISPOSITION OF INTERNAL REVENUE COLLECTIONS 
5 
1947 Budget 
St. Croix 
St. Thomas and St. John 
Amount 
Percentage 
Amount 
Percentage 
$9,410 
5, 650 
32, 810 
9,020 
150 
102, 976 
16, 980 
31.648 
22, 040 
5,000 
75, 200 
49, 744 
1, 500 
2,700 
14,700 
3,180 
1,300 
10, 380 
1.500 
2.37 
1.41 
8.26 
2. 27 
.04 
25. 94 
4. 28 
7. 97 
5. 55 
1.26 
18.94 
| 13.59 
3.70 
.80 
.30 
2. 62 
.38 
$29,020 
6,960 
62, 010 
3.29 
.79 
7.02 
27, 285 
138, 055 
(>) 6,260 
54, 700 
25,140 
217, 324 
j 118,295 
3.09 
15.63 
(«) .71 
6.19 
2.85 
24.60 
13. 39 
Education..___ 
1 ' . 
6, 796 
600 
14, 107 
2, 500 
13, 520 
4, 480 
11,860 
3, 700 
15, 380 
4, 460 
1,180 
2,586 
7, 140 
110,000 
.77 
.07 
1.60 
.28 
1. 53 
.51 
1.34 
.42 
1.74 
. 50 
.13 
.29 
.81 
12.45 
Contingent_____ 
1, 000 
.25 
397, 018 
100.00 
883, 358 
100.00 
1 Included in above. 
The Secretary of the Treasury, 
Washington, July 2, 1947. 
Hon. Eugene D. Millikin, 
Chairman, Committee on Finance, 
United States Senate, Washington, D. C. 
My Dear Mr. Chairman: Further reference is made to your letter of April 
3, 1947, with which you enclosed a copy of bill S. 1014, Eightieth Congress, first 
session, “To provide for the disposition of internal revenue collections on articles 
produced in the Virgin Islands,” and requested a statement of this Department’s 
views on this proposed legislation. 
S. 1014 provides that all taxes collected under the internal revenue laws of the 
United States on articles produced in the Virgin Islands and transported to the 
United States, or consumed in the Virgin Islands, shall be covered into the Treas¬ 
ury of the United States to the credit of the Virgin Islands and shall be available 
to the Virgin Islands for expenditures as the Legislative Assembly of the Virgin 
Islands may provide. It is further provided that all acts or parts of acts incon¬ 
sistent with the terms of the bill are repealed to the extent of such inconsistency. 
Section 3350 of the Internal Revenue Code provides as follows: 
“(a) Taxes Imposed in the United States.—Except as provided in section 
3123, there shall be levied, collected, and paid in the United States, upon articles 
coming into the United States from the Virgin Islands, a tax equal to the internal 
revenue tax imposed in the United States upon like articles of domestic 
manufacture. 
“(b) Exemption From Tax Imposed in the Virgin Islands.—Such articles 
shipped from such islands to the United States shall be exempt from the payment 
of any tax imposed by the internal revenue laws of such islands.” 
It is the understanding of the Department that, insofar as S. 1014 relates to the 
internal revenue taxes collected upon articles produced in the Virgin Islands and 
transported to the United States, the tax proceeds segregated by the bill to the 
Virgin Islands are taxes collected under the authority of section 3350 of the code; 
that is such taxes as are due and payable at the time the Virgin Islands article is 
withdrawn from customs for consumption or sale in the United States. It is the 
a 
DISPOSITION OF INTERNAL REVENUE COLLECTIONS 
further understanding of the Department that the bill does not cover taxes col¬ 
lected with respect to Virgin Islands articles after they have entered within the 
United States; that is, that the bill does not cover such taxes as Federal retail sales 
taxes collected with respect to Virgin Islands articles sold at retail in the United 
States, nor the tax on manufactured sugar which may be paid by the manufacturer 
under section 3490 of the Internal Revenue Code with respect to Virgin Islands 
raw sugar refined in the United States. 
It is to be noted that S. 1014 is quite similar to section 3360 (c) of the Internal 
Revenue Code which provides that all taxes collected under the internal revenue 
laws of the United States on articles produced in Puerto Rico and transported to 
the United States, or consumed in the islands, shall be covered into the Treasury 
of Puerto Rico. This provision of law with respect to Puerto Rico is related to 
section 3360 (a) of the code which applies to Puerto Rican articles a rule quite 
similar to that applied to Virgin Islands articles by section 3350 of the code, quoted 
above. The views expressed above as to the internal revenue taxes covered by 
S. 1014 are the construction which the Department has given to section 3360 (a) 
of the code in the case of internal revenue taxes segregated to Puerto Rico. 
As the provisions of S. 1014 are directly related to section 3350 of the Internal 
Revenue Code, and as it is desirable to have all provisions of law relating to 
internal revenue taxes made a part of the Internal Revenue Code, the Department 
urges if consideration is to be given to the enactment of S. 1014 that its provisions 
be made subsection “(c)” of section 3350 of the Internal Revenue Code. This 
would be consistent with the treatment accorded like provisions of law applicable 
to Puerto Rico and similar provisions of law (secs. 3340 and 3343 of the Internal 
Revenue Code) which were applicable to the Philippine Islands prior to July 4, 
1946. Subject to the foregoing comment the Department interposes no objection 
to the enactment of S. 1014. 
Due to the expeditious nature of this report, the Department has not been 
advised by the Bureau of the Budget as to whether the proposed legislation is in 
accord with the program of the President. 
In the event that further correspondence relative to this matter is necessary, 
please refer to the symbols CC:L&R:EFB, A-412887. 
Very truly yours, 
Joseph J. O’Connell, Jr., 
Acting Secretary of the Treasury. 
o