Post #514358 by ikitnrev on Mon, Mar 1, 2010 4:39 PM

This Bacardi vs Captain Morgan battle is heating up again. Actually, it appears to be more of a Puerto Rico vs Virgin Islands battle over the receipt of tax receipts, with beverage companies Diageo and Bacardi involved also.

Here are excerpts from a recent Wall Street Journal article (FYI: the amount of tax collected on rum is $13.50 per gallon) ....

At issue is the U.S. rum-tax "cover over" program. Dating back decades, it stipulates that most of the excise taxes collected on rum sold in the U.S.- no matter where that rum is made - be rebated to rum-producing U.S. islands. The allocation of that revenue is based on how much rum an island produces. Islands have given back portions of those proceeds to distillers in the form of tax breaks or marketing subsidies.

In 2008, Diageo signed an agreement to produce rum for its Captain Morgan brand on St. Croix, with initial sales in 2012. Diageo is set to receive direct and indirect tax incentives projected to total $2.7 billion over the 30-year deal, including the cost of a new distillery. It currently buys rum for Captain Morgan from a third-party producer in Puerto Rico, where Bacardi makes its rum.

Diageo has said it will not continue buying rum from its Puerto Rican supplier and would move production outside the U.S., to a place such as Guatemala, if the deal with the Virgin Islands fell apart. If that happened, it would result in Puerto Rico being allocated a much higher share of rum-tax rebates than it would receive if Captain Morgan was produced on St. Croix.

Here is the link to the full Wall Street Journal article.
http://online.wsj.com/article/SB10001424052748703503804575084201899757486.html

One thing left out of this is the quality of the rum - the tax law is based on quantity of rum produced. Each time I buy a bottle of Zacapa, or Martinique produced rum -- the taxes from that rum are more likely to end up promoting Bacardi, Captain Morgan, or some other high-volume rum company.