Diageo
The ad on page 3A of Thursday’s Billings Gazette announces that the world’s largest liquor company, Diageo, is plundering U.S. tax dollars to the tune of $2.7 billion. It encourages readers call on Baucus, the sixth-most powerful member of the U.S. Senate to stop the British company. (Courtesy photo)

Too flat-footed for Uncle Sam’s Army? If a rum war is more your speed, Captain Morgan wants you.

Rum lobbyists seeking Democratic Sen. Max Baucus’ help in a subsidy battle took their case to Montana on Thursday, placing a quarter-page ad in the state’s largest newspaper and contacting journalists about their 40-proof fight.

The ad on page 3A of Thursday’s Billings Gazette announces that the world’s largest liquor company, Diageo, is plundering U.S. tax dollars to the tune of $2.7 billion. It encourages readers call on Baucus, the sixth-most powerful member of the U.S. Senate, to stop the British company.

Diageo, which owns Captain Morgan, a spiced Puerto Rican rum with a swashbuckler on its logo, shot back with a 13-page press release accusing fellow drink giant Bacardi of launching a sneak attack to drive the pirate beverage from U.S. territories.

The fight centers on a very potent keg of rum tax dollars. Since 1917, the federal government has collected an excise tax on distilled spirits brought into the country. The current tax is $13.50 per proof gallon. The government then rebates the rum-related taxes back to the governments of Puerto Rico and the Virgin Islands.

Puerto Rico has made a policy of giving an undisclosed percentage of its rum money back to island distillers, including Bacardi and Captain Morgan, to promote business. In 2008 the U.S. Virgin Islands upped the ante, offering up to half of its rum taxes to Diageo if Captain Morgan relocated there to produce rum for the next 30 years. The deal’s estimated worth is $2.7 billion. Puerto Rico cried foul and now wants the federal government to cap rum subsidies given by the territories to distillers.

“The territorial legislature of the Virgin Islands has the authority under the cover of the act of 1917 to decide how they use the funds that come to it,” said Guy Smith, executive vice president of Diageo.

Smith said Puerto Rico could give more of its money to distillers to counter the Virgin Islands if it wanted. Diageo went with the better offer, Smith said. That’s just business. If Captain Morgan loses its subsidy and has to set sail, Puerto Rico and Bacardi will benefit for having one less distiller with whom to share subsidies.

But distiller Roberto Serrallés, of Destilería Serrallés, the Puerto Rican distillery that has made Captain Morgan under contract since the 1980s, said his government has made a point of spending most of its money on public services, which would suffer if the distillers received a larger share. Captain Morgan was more than 80 percent of Serrallés’ business. The company also makes DONQ, a rum sold mostly in Puerto Rico.

“The subsidy is so large it’s twice the cost of production,” Serrallés said. Smith called Serrallés claim unfounded.

Serrallés backs the idea of a federal cap on rum subsidies for distillers. The issue will have to be taken up by the Senate Finance and Claims Committee, which Baucus chairs.

Baucus issued a statement Thursday, noting that he has prepared legislation to extend existing rum taxes, among other revenue items.

Baucus’ legislation does not include a federal cap.

It was the National Puerto Rican Coalition that paid for the ad in Thursday’s Gazette. The group placed the same ad in the Des Moines Register, the largest home state newspaper of Sen. Chuck Grassley, R-Iowa, and in the Albuquerque Journal, largest home state newspaper of Sen. Jeff Bingaman, D-N.M.

Grassley is the senior Republican member of Senate Finance. Bingaman, a Finance Committee member, is trying to forge a compromise between Puerto Rico and the Virgin Islands.

Bacardi did not return calls seeking comment; It issued a statement.

“This issue is about one point — the appropriate use of approximately 2.7 billion dollars in taxpayer money. This isn’t about where Diageo receives a free distillery, but about the proper use of federal tax dollars. Diageo has some explaining to do to the U.S. Congress and American people,” said Patricia M. Neal, on behalf of Bacardi Corporation.

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