The ebb and flow of tax on vessels – Wacky Tax Wednesday

I’m fascinated by the goods and services legislators choose to tax and those they select to exempt — the ebb and flow of the taxability tide. Take boats, for example. They’re subject to a surprising number of special sales tax rates and exemptions.

In 2013, Connecticut exempted sales of vessels that would be docked in the state for 60 or fewer days in a calendar year. It also created a sales tax exclusion for off-season moorage and storage fees (October 1 through May 31), and eliminated the 0.65 percent luxury surplus tax on vessels priced more than $100,000.

But apparently that wasn’t enough for a state with more than 600 miles of coastline. “Boats are big business,” says Senator Carlo Leone, cosponsor of the 2013 measure, “whether you’re selling them or repairing them or docking them.” And sales of new boats have ebbed recently; the Connecticut Marine Trades Association says they dropped by 9 percent from 2016 to 2017. 

So, Sen. Leone and Senator Bob Duff sponsored a measure to drop the sales tax rate for all boats, and it passed. The Connecticut sales tax rate on boats, boat engines, and boat trailers will drop from 6.35 percent to 2.99 percent on July 1, 2018. In addition, dyed diesel sold to marine fuel docks for marine purposes will be exempt from the motor vehicle fuel tax.

Sen. Duff believes the lower rate will help Connecticut’s maritime industry “thrive well into the future.” His opinion is shared by many in the industry. One Connecticut marina owner believes the lower sales tax rate “will be very helpful in turning this around. The lower tax rate will encourage purchases to take place here in Connecticut, and not in other states.”

They might be right. Neighboring Rhode Island’s marine industry seems to have benefited from the 1993 repeal of the sales and use tax on boats. And the New Jersey Legislature certainly thought a partial sales tax exemption for boats (and $20,000 sales tax cap) would support the maritime industry, which struggled in the wake of the recession and Hurricane Sandy. It’s unclear whether it actually has. On other hand, some states have worked to ensure that even homemade boats are taxed.

People have certainly gone to great lengths to avoid the sales tax on pricey purchases like yachts; one individual even tried to take possession of a new yacht in international waters to avoid paying Washington state sales tax (it didn’t work). But it’s rarely possible to avoid the tax you owe. For businesses, improving sales tax compliance is a better tactic. Learn how automation can help.