The Hotel Development and Finance Program Act (HDA) is a program created by the U.S. Virgin Islands (USVI) government through its Virgin Islands Economic Development Authority (USVIEDA). The USVI is a territory of the United States located in the Caribbean Basin and includes the four main islands of St. Thomas, St. John, St. Croix, and the smaller Water Island, as well as dozens of other minor islands. To be eligible for HDA benefits, a project must be located on one of the four named islands.The first benefit available through the HDA is the hotel occupancy tax (HOT) rebate. Hotel guests on the Islands are currently charged a 12.5% tax on rooms revenue, and investors can apply to receive an annual rebate of half or all of that tax for up to 30 years.Another incentive available to properties with a gaming operation is the Designated Casino Tax rebate. Properties that generate revenues through gambling offerings are subject to taxes of 8.0% of gross revenues from gaming operations in years one and two, 10.0% in years three and four, and 12.0% thereafter. Similar to the HOT, investors can apply for a rebate of either half of the casino tax or the full amount for up to 30 years.The third component of the HDA is the Economic Recovery Fee (ERF). The ERF incentive was added to the HDA following the particularly devastating impacts of Hurricanes Irma and Maria in 2017. Investors can apply to have an ERF tax (up to 7.5% of rooms revenue) added to their property’s guest bills. This tax would then be returned to the investor annually as a rebate for up to 30 years.These incentives are intended to offset development costs (including redevelopment, renovation, and new construction) incurred by investors in hospitality projects (largely hotels and resorts) on the Islands that are oriented towards tourists and visitors. Thus, the HOT, Designated Casino Tax, and/or ERF benefits will expire after either ownership’s recoupment of the property’s development costs (excluding operating costs and owner-funded capital improvements after the initial investment), or a maximum period of 30 years.
By
Kannan Sankaran, Managing Director of the HVS Consulting & Valuation practice in Washington, D.C,
HVS