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Court Gives Exclusive Jurisdiction in Virgin Islands Tax Case

By Tanya Roth, Esq. | Last updated on

Last week, the U.S. Court of Appeals of the Third Circuit ruled on a tax case that stemmed from the Virgin Islands district court.

While this is a tax case, don't worry -- we won't get into the heavy tax jargon in this post. But the U.S. Virgin Islands are U.S. territories which means that there is a little more U.S. oversight on the taxation of income there.

The U.S. Virgin Islands are also within the jurisdiction of the Third Circuit Court of Appeals.

The case dealt with largely jurisdictional issues, focusing on whether the Virgin Islands courts had jurisdiction on the tax matters at issue.

Generally speaking, the U.S. Virgin Islands are able to collect any tax on income derived in the U.S. Virgin Islands. But as promised, we won’t get into heavy tax law here.

The petitioners were two husband-and-wife teams who owned two businesses. They each owned a Virgin Islands corporation and the two corporations were in partnership together, under Virgin Islands partnership laws.

The problem arose with deciding which tax was owed to which taxing authority. In short, what did the petitioners owe to the Virgin Islands and what did they owe to the United States. While the companies were owned in the Virgin Islands and the petitioners were all “bona fide residents” of the Virgin Islands, they were still U.S. citizens and that subjected them to certain tax laws.

The case, as it dealt with a determination of U.S. source income versus Virgin Islands source income, was transferred by the Virgin Islands district court to Florida. Florida was where the petitioners formally resided.

The jurisdictional question went to term “exclusive jurisdiction” of the Virgin Islands district court on tax matters in the Virgin Islands.

The Third Circuit Court of Appeals ruled that the term “exclusive jurisdiction” referred to exclusivity in relation to other Virgin Island courts and not absolute exclusivity at the preclusion of other U.S. courts.

A federal court in Florida will now look at the tax issues involved in the case.

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