The rum cover over program, which is nearly a century old, was enacted by Congress to provide important budgetary support for the government Puerto Rico, and later for the U.S. Virgin Islands.

New plans to use federal tax revenues to excessively subsidize individual rum companies could put the entire program in jeopardy.

It would be impossible for any company to compete if its competitors were subsidized to the extent planned in the Virgin Islands.

In 1900, Congress approved a law that stipulated that federal taxes on Puerto Rican products would be used to help pay for the government of the U.S. territory.

The original version of the current law was enacted in 1917. It now “covers over” (transfers) to Puerto Rico’s government most of the federal taxes collected on rum produced on the Island and in foreign countries to help pay for the cost of government.

In 1954, Congress granted the request of the U.S. Virgin Islands for support of its government budget similar to that granted to Puerto Rico.

Permanent law gives Puerto Rico and the U.S. Virgin Islands $10.50 of the $13.50 per proof gallon tax on rum distilled in each territory and in foreign countries. Temporary law, which requires recurring congressional approval, provides an additional $2.75 per proof gallon.

 Puerto Rico uses 94 percent of the federal tax revenues to support public service investments in education, health, infrastructure and environment preservation.

Six percent is spent to develop and promote the territory’s rum industry.

 Local law limits the funds being spent on rum industry development and promotion to 10 percent.

These funds support marketing, efficiency and innovation initiatives of the industry as a whole.

 Puerto Rico adheres to this limitation to keep the use of the funds true to the original intent of Congress in transferring the taxes to Puerto Rico’s government.

The program as created by Congress was intended to provide budgetary support to the territorial governments.

Instead, federal revenues are being be used to excessively subsidize rum companies.

The Government of the Virgin Islands has recently developed plans to use most of the federal tax to individually benefit two large corporations that sell rum.

One of the arrangements would give a single company more $2.7 billion of the federal tax revenue over 30 years – 54 percent of the grants based on production. This amount is so large it would cover the entire cost of producing the product.

Puerto Rico’s resident commissioner has sponsored a bill, H.R. 2122, that would limit to 10 percent the amount of federal tax revenue that can be used to subsidize rum production.

The legislation sets parameters on what constitutes a reasonable subsidy under this federal program, and helps devise a fair and reasonable policy going forward to ensure congressional intent.

Marketing incentives – The ROPR program grants marketing incentives which are used by the brands to advertise and promote events as part of co-branding campaigns with ROPR.  In order to participate in the program, each brand must submit a marketing plan that must be approved by the ROPR Program Director and its Board of Directors. All ads produced in this category contain the branding of both the individual rum and the Rums of Puerto Rico.

Production incentives – Because Puerto Rico lacks some raw materials used in the production of rum, the ROPR program provides some incentives to help reduce the cost of imported ingredients.