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The Associated Press November 13, 2010, 4:06PM ET

Puerto Rico to invest more money in rum promotion

Puerto Rico is toasting a proposition to invest more heavily in its world-class rum.

Legislators voted late Friday to increase from 10 percent to 25 percent the portion of a federal excise tax on local rum they will use to promote the island's rum industry.

The bill, which is expected to be signed by Gov. Luis Fortuno, would allow him to use up to 46 percent of the revenues for promotion unless Congress votes to cap them before the end of 2011.

The funds come from a $13.50 federal excise tax levied on every proof gallon of rum produced in Puerto Rico and the U.S. Virgin Islands. For each bottle, all but 25 cents of the tax goes to the government of the island where the rum is made.

Puerto Rico currently invests 90 percent of its revenues -- $434 million last year -- in economic projects including land conservation and development of new technologies.

Puerto Rican lawmakers approved the bill amid an ongoing feud with the U.S. Virgin Islands, which they accuse of luring away a rum company by offering it an excessive percentage of excise revenues.

In January 2009, the liquor company Diageo PLC decided to build a Captain Morgan rum distillery in the Virgin Islands -- and leave its location in Puerto Rico -- in return for an estimated $2.7 billion in excise-tax revenues over 30 years. It was not clear what percentage of the Virgin Islands' total taxes that amounts to.

Puerto Rico estimates it will lose $136 million in tax revenues as a result of Diageo's relocation.

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