Everyone Deserves a Boat – Wacky Tax Wednesday
- Sales and Use Tax
- February 3, 2016 | Gail Cole
Does anything say freedom and adventure like a boat? Standing at the prow, we are masters of our fate, captains of our soul. This is as true on a well-loved rowboat as it is on a multi-million dollar yacht. I’ve even felt it from a wobbly perch on my paddleboard. But that feeling comes at a cost.
And boy, do boats cost. They're pricey to purchase, moor, and maintain. That’s why the second happiest day of a man’s life is said to be the day he sells his boat (the happiest being the day he bought it).
One way to minimize costs is to purchase your vessel in a state with a favorable sales and use tax policy towards boats. It turns out that certain states exempt or partially exempt watercraft.
Live the dream
Alabama. A boat, motor and trailer sold as a unit is taxable at 2% of the net difference paid if it qualifies as an automotive vehicle.
Curiously, a sailboat sold alone is taxed at a rate of 4% of the total selling price, while a sailboat sold with an auxiliary motor permanently attached qualifies as an automotive vehicle and is taxed a 2% of the net difference paid (Code of Alabama, 810-6-2-.46.01).
Connecticut. Vessels priced more than $100,000 used to be subject to a luxury tax on top of the regular state sales tax. However, in 2013, the luxury tax was eliminated, and most boats are now taxed at the same rate.
Florida. The maximum sales and use tax on the sale of a boat or vessel is $18,000 no matter how big, fancy, and expensive it is. Credit is allowed for sales tax paid to other states on boats purchased in another state and brought into Florida for use or storage.
New Jersey. Boats are subject to a 50% exemption as of February 1, 2016, meaning you pay 3.5% instead of 7% sales or use tax. On top of that, there is a maximum tax cap of $20,000. There is also a new, more flexible use tax policy as of January 1, 2016. Governor Chris Christie vetoed the initial bill, which sought only the $20,000 tax cap. His reason: he thought there should be tax-relief for everyone, not just those who purchase high-end vessels. The bill he eventually signed included the 50% exemption.
Rhode Island. The general rule is that the sale and storage, use, or other consumption of any new or used boat is exempt from Rhode Island sales and use tax. To qualify for the exemption, vessels must have a hull identification number. Watercraft lacking this number are generally subject to sales and use tax. However, the Rhode Island Division of Taxation announced in 2014 that paddleboards qualify for the exemption (Rhode Island Statutes §44-18-30 (48)).
States with no income tax. The IRS allows a deduction for state and local sales taxes or state and local income taxes. The choice is easy if you live in a state that has sales tax but no income tax: Alaska (local sales tax), Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Virginia. Although the general state sales tax rate is 4.3%, watercraft is subject to a sales and use tax rate of 2% of the purchase price, or of the current market value if purchased six months or more before it is required to be titled for use in Virginia. The maximum watercraft tax for any transaction is $2,000 (Code of Virginia, Chapter 14).
Store the dream
Connecticut. Charges for vessel mooring and storage services are exempt from Connecticut sales and use tax from the first day of October through the last day of May.
Repair the dream
Florida. I don’t own a vessel, but I understand repairs can be costly. Certainly ships can spend a long time in repair yards. But as of July 1, 2015, there is a maximum sales and use tax of $60,000 (state and local) on each boat repair transaction in Florida.
If a state can exempt or partially exempt yachts costing six or seven figures, why not also exempt bikes, or skis? Or more practical items, like furniture?
It could be that sales tax is wacky.