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New York: Yachts and Use Tax

  • Sep 24, 2013 | Gail Cole

 Cruising Alexandria Bay, New York? Have you paid sales or use tax on your vessel?

In the world of boating, it's not uncommon to purchase a vessel in one state and transport it to another state for storage or use. If sales tax isn't paid when the boat changes hands in one state, use tax is owed once it arrives in the state where it will be used or stored.

State departments of revenue notice if sales tax wasn't paid at the time of purchase and use tax wasn't paid at the time a vessel entered its home state. Take a New York case that has been in dispute for years. Earlier this month, the New York Division of Tax Appeals issued a final determination in the Matter of the Petition of Stan Groman.

Mr. Groman (Petitioner) purchased a yacht in Florida in 2004 without paying Florida sales tax. The boat headed up the coast for New York but was forced to winter in New Jersey after engine trouble. Some time in the spring of 2005 the yacht made it to New York waters, where it remains today. The precise date of entry is not known.

New York tax law makes clear that sales tax is imposed on receipts from "every retail sale of tangible personal property… ." Use tax is due when tangible personal property is kept, stored or retained for any length of time in New York (Tax Law § 1110(a) and § 1101(b)(7)).

The Petitioner did not pay Florida sales tax when he purchased the vessel and he did not pay New York use tax when it entered New York waters. He claims his vessel is "exempt from use tax because it is a commercial vessel primarily engaged in interstate or foreign commerce;" he purchased it with the intent to offer charter cruises near the Canadian border, transporting people to and from Canada and cruising along lakes and waterways.

In fact, New York State does exempt from sales and use tax "[c]ommercial vessels primarily engaged in interstate or foreign commerce … ." However, in order to qualify for the exemption, "50 percent or more of the receipts from the vessel's activities" must be "derived from interstate or foreign commerce."

Prove it

In this case, very limited information was provided to the Division of Tax Appeals:

"It is impossible to determine what percentage, if any, of the receipts, i.e. gross income, earned in the years 2006, 2010, and 2011 were from foreign commerce, i.e., charters transporting passengers to and from Canada; rather than charters conducted solely within New York State."

In other words, the Petitioner "failed to establish that the subject vessel is a commercial vessel engaged in interstate or foreign commerce…." As a result, the Division of Tax Appeals determined that use tax is owed to the state.

Under New York law, tax is due "until the contrary is established, and the burden of proving that any receipt … is not taxable hereunder shall be upon the person required to collect the tax or the customer." (1132(c)(1)). The petitioner in this case failed to prove that a sales and use tax exemption was valid.

Pay up

The boat was purchased for approximately $100,000 but did not enter New York waters until roughly 16 months after purchase. The State of New York allows the value of the vessel to be depreciated and gave it a reasonable taxable value of "$86,575.00." New York use tax is therefore owed on that amount, plus penalties and interest because the "Petitioner has failed to establish a reasonable cause or the absence of willful neglect" in failing to pay use tax when the vessel entered New York.

The moral of this tale is that state departments of revenue are watching. The New York Department of Taxation and Finance noticed Mr. Groman had a vessel in New York, and it noticed that no sales and use tax had been paid on that vessel. States depend on sales and use tax revenue, and they're willing to go after missing revenue. This has been especially true since the economic downturn.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.