Willis v. People of the V.I. - 71 V.I. 789 (2019)

Rule:

In using the phrase "income tax laws applicable to the Virgin Islands" in 48 U.S.C.S. § 1612(a), Congress intended to refer specifically to the provisions of the Internal Revenue Code that apply to the Virgin Islands through the mirror tax system. This conclusion harmonizes the statutory language with both the stated intentions of Congress in amending § 1612(a), and with Congress' overarching purpose in enacting the 1984 amendments generally: to give local courts jurisdiction over local law.

Facts:

From 2000 to 2006, Willis served as the Director of the Virgin Islands Bureau of Internal Revenue (“BIR”). From 2002 to 2008, during his tenure as Director, and shortly after his term ended — Willis furnished false tax clearance letters to Gerald Castor — the owner of Balbo Construction, Inc. and Willis' friend. Willis signed the letters in place of Judith Creighton, the Supervisor of the Tax Records Management Division, who was in charge of issuing tax clearance letters to entities in good standing. The letters provided by Willis represented that Balbo Construction was current in all of its tax obligations. In fact, Balbo Construction owed BIR payments for gross receipts taxes and had not filed corporate tax returns for a number of years. Thus, prior to receiving assistance from Willis, Castor's application for a tax clearance letter had been denied by Creighton because Balbo Construction was delinquent in its tax obligations. Because the Department of Licensing annually requires entities and their owners to be current on all taxes prior to obtaining a business license, Balbo Construction used the false letters provided by Willis to obtain a business license from the Department. Moreover, on or around February 14, 2008, Willis prepared gross receipt returns on behalf of Balbo Construction, which underreported its gross receipts for the years 2002-2007. One year later, Balbo Construction paid the outstanding gross receipts tax. After a BIR audit by the Internal Revenue Service (“IRS”) and the Virgin Islands Office of the Inspector General, the entities discovered Willis' activities. Specifically, the IRS found that in exchange for the false clearance letters, Castor, on behalf of Balbo Construction, paid Willis five thousand dollars for “accounting services.”

Based on the preceding facts, the People initiated charges against both Willis and Castor for criminal tax offenses. Castor later entered into a plea agreement with the Government. In exchange for a reduced sentence, Castor entered a guilty plea and agreed to testify on behalf of the Government. In a motion to dismiss, Willis argued before the Superior Court that the court lacked subject matter jurisdiction to hear his case, on the theory that jurisdiction lay exclusively in the District Court by operation of section 22 of the Revised Organic Act of 1954 and section 1612(a) of title 48 of the United States Code. The Superior Court denied his motion to dismiss in a November 10, 2014 order. Trial took place from August 18 through 25, 2015. The jury found Willis guilty of conspiracy to defeat or evade tax in violation of 33 V.I.C. § 1522 (Count 1) and aiding and abetting willful failure to collect or pay over tax pursuant to 14 V.I.C. § 11 and 33 V.I.C § 1523 (Count 2). As to Count 3, fraud and false statements in violation of 33 V.I.C. § 1525(2), the jury returned a “not guilty” verdict. For the purposes of sentencing, the Superior Court, in an October 1, 2015, judgment and commitment, merged Count 2 with Count 1 and stayed the imposition of a separate sentence for the conviction on Count 2. 

Issue:

Did the Superior Court properly exercise jurisdiction over the criminal matter charging Willis with violations of the territorial gross receipts tax laws?

Answer:

Yes.

Conclusion:

In describing the purpose and intended effect of the proposed amendment to § 1612(a), Senator Weicker explained, in relevant part: “In analogy to § 31 of the Organic Act of Guam, the district court will also have exclusive jurisdiction in all proceedings under the income tax laws applicable to the Virgin Islands, except certain ancillary laws enacted by the legislature of the Virgin Islands. This provision is based on the consideration that since the income tax laws applicable to the Virgin Islands are the provisions of the Internal Revenue Code uniformity of interpretation requires that questions involving the interpretation of those laws be litigated only in the Federal courts. This provision appears to be necessary in view of the characterization of the income tax laws of the Virgin Islands as a local Territorial tax which is reviewable in the district court only by virtue of local legislation. Another reason for this provision is the fact[ ] that this bill would abolish the concurrent jurisdiction of the district court over causes based on local law, if local law has vested jurisdiction over them in the local courts.”

First, and most simply, this explanation includes the statement that “the income tax laws applicable to the Virgin Islands are the provisions of the Internal Revenue Code. …” This statement clarifies, without ambiguity, precisely what Congress understood the operative statutory language to mean. As used and understood by Congress, the phrase “income tax laws applicable to the Virgin Islands” did not mean any law pertaining to any tax on any form of income — as a literal reading of the statute might suggest — but rather specifically referred to those portions of the Internal Revenue Code made applicable to the Virgin Islands pursuant to the Naval Services Appropriation Act of 1939 which created the system of taxation now known as the “mirror code.” Moreover, the Congressional Record not only reveals precisely what Congress meant by “income tax laws applicable to the Virgin Islands,” but further explains why Congress believed it necessary to grant the district court exclusive jurisdiction over this area of the law. That is, “[u]niformity of interpretation requires that questions involving the interpretation of those laws be litigated only in Federal courts.” In this case, “those laws” refers to the “the provisions of the Internal Revenue Code” mentioned in the previous line. And, given that one overarching purpose of the 1984 amendments was to permit the territorial legislature to divest the district court of jurisdiction to hear cases based in local law, Congress was particularly worried by language included in the Third Circuit's decision in Dudley v. Commissioner of Internal Revenue, 258 F.2d 182, 3 V.I. 685 (3rd Cir. 1958) finding “that the tax here in dispute [a provision of the mirror code] is actually not a tax of the United States but a territorial income tax.” So, Senator Weicker explained that in order to maintain uniformity in the law, it appeared necessary to expressly provide for the district court's exclusive jurisdiction in cases involving the interpretation of the mirror code “in view of the [Third Circuit's] characterization of the income tax laws of the Virgin Islands as a local Territorial tax which is reviewable in the district court only by virtue of local legislation.” Given that Congress' clear objective in establishing the district court's exclusive jurisdiction over this area of law was to ensure the uniformity of interpretation of the provisions of the Internal Revenue Code, there is no Congressional purpose that would be served by counting the territorial gross receipts tax among the “income tax laws applicable to the Virgin Islands.” There exists no possibility of concern over the uniformity of interpretation of the gross receipts tax because it is purely a creature of local legislation and is not borrowed from, or patterned on, any provision of the Internal Revenue Code. Additionally, this interpretation is further bolstered by the other stated purposes of Congress in enacting the 1984 amendments discussed above: (1) to make the relationship between the territorial courts and the district court more like the relationship between state courts and the courts of the United States, and (2) to empower the territorial legislature to divest the district court of jurisdiction over purely local matters.

The Superior Court based its jurisdictional determination, in part, on the fact that the gross receipts tax is local law. And while, on the surface, § 1612(a) does not draw a distinction between laws enacted by the territorial legislature and provisions of the Internal Revenue Code applicable through the mirror tax system, it is also undeniable that one of Congress' chief purposes in adopting the 1984 amendments was to grant the local, territorial courts jurisdiction over questions of local, territorial law. Stated plainly, the gross receipts tax provisions of the Virgin Islands Code are precisely the type of purely local laws enacted by the territorial legislature over which Congress intended to vest jurisdiction in the local courts.

Finally, to the extent that any doubt remains, Senator Weicker also explained that the exclusive jurisdiction provision of § 1612(a) was intended to be analogous in function to its counterpart in the Organic Act of Guam; specifically, 48 U.S.C. § 1421i(h). Section 1421i(h)(1) provides, in relevant part: “the District Court of Guam shall have exclusive original jurisdiction over all judicial proceedings in Guam, both criminal and civil, regardless of the degree of the offense or of the amount involved, with respect to the Guam Territorial income tax.” Fortunately, whereas Congress failed to specify the meaning of the phrase “income tax laws applicable to the Virgin Islands” in the text of the Revised Organic Act of the Virgin Islands, Congress did include in the Organic Act of Guam a definition of the phrase “Guam territorial income tax.” “The income-tax laws in force in Guam pursuant to subsection (a) of this section shall be deemed to impose a separate Territorial income tax, payable to the government of Guam, which tax is designated the “Guam Territorial income tax.” In turn, subsection (a), patterned off of the Virgin Islands' mirror tax provision, states that “[t]he income-tax laws in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in Guam.” Synthesizing these provisions together then, the ”Guam territorial income tax,“ over which the district court has exclusive jurisdiction, refers specifically to the provisions of the Internal Revenue Code made applicable to Guam through its own mirror tax system. Thus, given that the text of the Organic Act of Guam clarifies that the district court has exclusive jurisdiction only over actions related to the provisions of its own mirror code, and given that Congress intended for § 1612(a) to function “in analogy” to its Guam-focused statutory counterpart, it is clear that Congress, in using the phrase “income tax laws applicable to the Virgin Islands,” understood that phrase as a term of art, referring specifically to the provisions of the Internal Revenue Code made applicable to the Virgin Islands by virtue of the mirror tax system.

When considered together and viewed in the proper historical context, these three aspects of the legislative history embodied in Senator Weicker's explanation paint a clear picture of the purpose and intended effect of the 1984 amendments to § 1612(a). Indeed, in Birdman v. Office of the Governor, 677 F.3d 167, 56 V.I. 973 (3d Cir. 2012), the Third Circuit turned to these same remarks to support its conclusion that the exclusive jurisdiction provision of § 1612(a) applied only as to the local courts and not other United States district courts, because “[t]he Virgin Islands income tax is analogous to a federal tax; thus the Virgin Islands local courts lack jurisdiction.”