Tax Implications For Cruising The Pacific Northwest

[Alaskan Sea-Duction]

Washington laws are pretty strict. They don't care about your LLC, or were you live. There are huge number of California owned boats that spend the winter on the hard and then splash and head to Canada, they all have Washington excise stickers on them even though they say CA in the home port.

That said, enforcement of the law is weak but thats still more risk than its worth to me.

Yes they are strick and weak unless someone turns you in. In my case it cost me 16k for a non-resident user fee.

 

[drb1025]

Washington laws are pretty strict. They don't care about your LLC, or were you live. There are huge number of California owned boats that spend the winter on the hard and then splash and head to Canada, they all have Washington excise stickers on them even though they say CA in the home port.

That said, enforcement of the law is weak but thats still more risk than its worth to me.

As you observed, an LLC will not shelter anyone from the annual boat registration excise taxes in WA, which are not cheap. However, when you purchase the membership shares of an LLC, WA does not impose a sales tax on the transaction, nor do most states.

 

[f508]

Never mind, I just noticed that what I wrote was already covered in this thread.

 

[Sailor of Fortune]

And now a comment from a tax attorney (former): On the US east coast it was not difficult to get a letter from either the state's sales tax (sic) department or the attorney general's office that the state law excluded periods of time in which the boat was on the hard and decommissioned for storage. Decommissioned is a vague term but basically it means the boat is not in a facility that has quick and easy relaunch (think 20 ft fishing boats in racks).

A useful approach is to say "We are cruisers and are passing through Washington but would like to store the boat for the winter/summer whatever and have some work done. We cannot do this if such time in storage / repair will count toward sales tax liability. Could you advise what the law is with regard to us storing / repairing our boat in your state.

Basically even some of the more liberal states don't want to screw their boatyards out of the business resulting from storing and repairing out of state boats.

Seems like really good advice from a professional. I would hope Washington state would agree.

I'm of the camp that says just pay the tax and sleep at night,but I don't own big money boats..

 

[Retriever]

You could look for a boat owned by an LLC. When buying the LLC, ownership of the boat doesn’t change so no sales taxes are due. Then register it in WA and pay the annual registration fee and enjoy cruising WA, BC, and Alaska as you wish. But consult an attorney first. It may also be easier to sell in an LLC.

I've heard a lot about the benefits of having a boat in an LLC specifically for the WA sales tax issue, but I don't really understand how it works in practice. If the sole asset of an LLC is a pleasure boat, does WA really allow the LLC and the boat to be transferred tax free? Of course there are risks with acquiring an LLC, but the tax savings are potentially significant.

As a Washington resident who wanted to keep my boat in Washington (and as someone who doesn't hate all government and taxes), I just paid the tax. But I totally understand the dilemma for out-of-staters who want to have a boat in Washington, particularly people like Twistedtree with a valuable boat that's only going to be here for a year or two.

 

[S41]

I work with the idea that the price of the boat includes the taxes/registration/surveys to be paid. By that, I mean if I pay $100K for the boat, it really means I am paying 9% more with sales tax + the survey + the registration + plus whatever it costs to deal with the agent doing the title issues. So, if my budget is let’s say $120K all done, I want to be negotiating a purchase below $100K.

I am ok paying the taxes on the purchase of my boat here in WA State. I lived out of State when I bought my boat in WA. I paid the sales/use tax and figured it was just part of the price of the boat. No different than the survey or title search.

 

[drb1025]

I've heard a lot about the benefits of having a boat in an LLC specifically for the WA sales tax issue, but I don't really understand how it works in practice. If the sole asset of an LLC is a pleasure boat, does WA really allow the LLC and the boat to be transferred tax free? Of course there are risks with acquiring an LLC, but the tax savings are potentially significant.



As a Washington resident who wanted to keep my boat in Washington (and as someone who doesn't hate all government and taxes), I just paid the tax. But I totally understand the dilemma for out-of-staters who want to have a boat in Washington, particularly people like Twistedtree with a valuable boat that's only going to be here for a year or two.

As I understand it, the tax benefits of having your boat in an LLC accrue to the buyer of the LLC due to states not imposing sales taxes on the transfer of securities/membership shares. When the boat was originally purchased, even if purchased by the LLC, sales taxes on that purchase were likely paid, unless exempt for specific reasons such as putting it directly into charter. So the state got their sales taxes, at least on the initial purchase.

 

[BandB]

Every state treats the purchase of an LLC differently. Sometimes the nature of the LLC is examined and the assets taxed as if personally held. Attorneys can address that in designing them. Purchasing an LLC entails a lot of due diligence to be sure all liabilities are looked at. We have purchased many small businesses but I will not purchase a corporation or an LLC, just assets. The last time it made sense to me to purchase the company was olden days when you could acquire the operating loss carryovers and use them to offset the profits of other businesses. The IRS wised up and stopped that decades ago.

Now, I will put assets in an LLC and Corporation but that's different.

 

[twistedtree]

As I understand it, the tax benefits of having your boat in an LLC accrue to the buyer of the LLC due to states not imposing sales taxes on the transfer of securities/membership shares. When the boat was originally purchased, even if purchased by the LLC, sales taxes on that purchase were likely paid, unless exempt for specific reasons such as putting it directly into charter. So the state got their sales taxes, at least on the initial purchase.

Part of the difference is that the tax on a used boat being brought into the state is a Use Tax, not Sales Tax. So different rules. I haven't tried it, but I doubt an LLC ownership will get you out of the tax.

Another thing to consider in all this is you state of residence. For those of you who are WA residents, the tax is immediately due when you bring the boat into the state. The visitor rules don't apply to you. And don't think you can place the boat in a non-WA LLC and come in as a visitor. They figured that one out and you need to show that none of the LLC owners are WA residents.

I agree with the sentiment that the taxes are part of boat ownership, but that only makes sense for a boat that's in the same place as your residence. I have bought numerous boats in MA where we live, for use here, and paid the tax and moved on, just like others are suggesting.

But it's different for a boat that is always moving. Should I pay tax like a resident everywhere I visit? If I had to, I wouldn't be visiting too many places. That's why all states have visitor provisions. Based on those provisions, I can decide which states to visit, and for how long, based on what it's going to cost me.

In this context, the challenges with WA are:

1) The tax rate is quite high at 8%-9.5%, and there is no cap. So tax in WA is roughly twice what it is in most other states, and in some cases 90% or more.

2) If you are in and out of the state, which is quite common, the rules become ambiguous, and you are suddenly playing a very expensive guessing game where someone else is making up the rules and not telling you what they are until it's too late.

 

[O C Diver]

I wish states would just adopt a policy of requiring a registration sticker if you're going to be in their state more than 30 days (as opposed to just transiting the state). Think they would be money ahead if you could just buy a sticker online for the equivalent of what an instate boater registration costs. My FL registration is just short of $200 and would have had no problem paying that to Michigan this summer for all the time I spent there.

Ted

 

[O C Diver]

And now a comment from a tax attorney (former): On the US east coast it was not difficult to get a letter from either the state's sales tax (sic) department or the attorney general's office that the state law excluded periods of time in which the boat was on the hard and decommissioned for storage. Decommissioned is a vague term but basically it means the boat is not in a facility that has quick and easy relaunch (think 20 ft fishing boats in racks).

A useful approach is to say "We are cruisers and are passing through Washington but would like to store the boat for the winter/summer whatever and have some work done. We cannot do this if such time in storage / repair will count toward sales tax liability. Could you advise what the law is with regard to us storing / repairing our boat in your state.

Basically even some of the more liberal states don't want to screw their boatyards out of the business resulting from storing and repairing out of state boats.

I went through this in MD for my refit (FL boat in MD boatyard ). Obtained an email from the head of the tax division of DNR stating that I was exempt from use tax for the duration of my refit as long as my monthly yard bill (not including storage ) exceeded normal monthly dockage for for my boat.

Ted

 

[Bay Pelican]

I went through this in MD for my refit (FL boat in MD boatyard ). Obtained an email from the head of the tax division of DNR stating that I was exempt from use tax for the duration of my refit as long as my monthly yard bill (not including storage ) exceeded normal monthly dockage for for my boat.

Ted

Somewhere in my very old files (2003) I have an opinion letter from the Maryland Attorney General's office that the then new law re the use tax would not apply to a boat stored on land which was decommissioned for storage even if no other work was being done. The legislature's drafting did not make this exemption clear although it was their intent.

 

[Hamrow]

I went through this in MD for my refit (FL boat in MD boatyard ). Obtained an email from the head of the tax division of DNR stating that I was exempt from use tax for the duration of my refit as long as my monthly yard bill (not including storage ) exceeded normal monthly dockage for for my boat.

Ted

Ted, if i'm reading that right, it sounds really expensive. In the PNW from what we've seen, dry storage is maybe only half to two thirds the cost of an in-water slip.
You're saying MD wanted to ensure you were spending more than a normal slip fee just on the yard work, not including yard storage...?

 

[Bay Pelican]

I went through this in MD for my refit (FL boat in MD boatyard ). Obtained an email from the head of the tax division of DNR stating that I was exempt from use tax for the duration of my refit as long as my monthly yard bill (not including storage ) exceeded normal monthly dockage for for my boat.

Ted

Ted
During the period in question was the boat in the water or on the hard? If it was on the hard was it usable, i.e. was it winterized?

 

[O C Diver]

Ted, if i'm reading that right, it sounds really expensive. In the PNW from what we've seen, dry storage is maybe only half to two thirds the cost of an in-water slip.
You're saying MD wanted to ensure you were spending more than a normal slip fee just on the yard work, not including yard storage...?

Ted
During the period in question was the boat in the water or on the hard? If it was on the hard was it usable, i.e. was it winterized?

MD feels that you owe the use tax if they are your principle use state. Simply, if you use the boat for three months during the summer and store it for 9 months in Pennsylvania, you owe MD the use tax.

My boat was in a building for 18 months during the refit. My monthly dockage in Crisfield works out to <$250 per month. So, to satisfy MD, I need to spend $250 per month plus storage (<$100 per month ). Between materials and labor, I was spending more than that (<$350) per week on average. In retrospect, I felt the state's approach was very reasonable.

Ted

 

[Crusty Chief]

Park the boat in Oregon.
No sales tax, no property tax and moorage is much cheaper. Documented boats have to pay for the state registration sticker that is affixed on the aft of the boat, the dink will require numbers as its not documented. Our cost for stickers on both is $250.00 every two years.
Spend less than 60 days in Wash each year, so no problem for us. If we parked the boat in Washington it would have been a $60K nut that I wasent willing to swallow. Plus the annual property tax. Even more if it was in CA.
Oh ya, a minor issue, we are Nevada residents. Why other states cant or wont adopt the sales tax concept that NV has is mind boggling. If you purchase an asset from a private party, no sales tax. Even for purchases out of state. They figure it’s already been paid once. So needless to say, most major asset purchases we make are used.
Oregon welcomes the $ we spend there, shame other states cant think like this.

 

[Bay Pelican]

MD feels that you owe the use tax if they are your principle use state. Simply, if you use the boat for three months during the summer and store it for 9 months in Pennsylvania, you owe MD the use tax.



Ted

That is reasonable to me as well. The situation I raised was different and it might apply to the poster on the west coast. Bay Pelican was a cruising boat moving slowly up the eastern seaboard. She would be cruising in the water in Maryland for less than 30 days (I believe that was the test then) but would be stored for the winter on the hard in Maryland at Harrington Harbor North. No paid work would be performed during storage and the boat was to be winterized. Upon a formal request the attorney general published an opinion that the period in storage (as described) would not be counted toward the 30 day period for application of the sales/use tax.

If the storage period (eight months) is not counted for our original poster's boat he can easily keep his boat under the limit for time in Washington before the state's sales/use tax applies.

 

[ksanders]

As a non resident I bought a boat in Washington state, and was going to have to pay their sales tax at closing.

They have a sales tax exemption form you fill out claiming that you are a non resident, and that you are intending to remove the boat from the state within 60 days of closing. Signing that form relives the burden of paying sales tax at closing.

Next step is remove the boat from their state as agreed. Alaska is a option. If you take the boat to Alaska you will get fantastic basically subsidized moorage rates and not have to pay sales tax. My moorage is right at $3,000 a year for a 50’ slip.

You could home port the boat out of Ketchikan, or Petersburg, and explore Alaska, Canada, and Washington at will.

Southern Alaska is right in the middle of the inside passage...in some of the finest, most unspoiled, uncrowded cruising grounds you will ever find.

 

[Hamrow]

Park the boat in Oregon.
No sales tax, no property tax and moorage is much cheaper. Documented boats have to pay for the state registration sticker that is affixed on the aft of the boat, the dink will require numbers as its not documented. Our cost for stickers on both is $250.00 every two years.
Spend less than 60 days in Wash each year, so no problem for us. If we parked the boat in Washington it would have been a $60K nut that I wasent willing to swallow. Plus the annual property tax. Even more if it was in CA.
Oh ya, a minor issue, we are Nevada residents. Why other states cant or wont adopt the sales tax concept that NV has is mind boggling. If you purchase an asset from a private party, no sales tax. Even for purchases out of state. They figure it’s already been paid once. So needless to say, most major asset purchases we make are used.
Oregon welcomes the $ we spend there, shame other states cant think like this.

Amen to that and I totally agree with this post. Crusty Chief: how often do you make the trek to Puget sound and how challenging is that trip...?

 

[Sugardog]

Taxes are what keeps society moving. Be honest and pay where you will be with the boat. Then don't look back and enjoy the sunsets.

 

[Crusty Chief]

Amen to that and I totally agree with this post. Crusty Chief: how often do you make the trek to Puget sound and how challenging is that trip...?

Our plans from the get go were to do the PNW for a couple years, then head south. Ulitimate goal is to spend a year or two in Mexico before transiting the canal and doing the east coast for a few years. So far, were still on plan.
Having done the transit up the coast for two years, its no big deal. We pay close attention to weather and go when the weather says so. We have done the overnight and harbor hop. For us, its 30+ hours from Astoria to Port Angeles depending on tides, wind and current. Total run time from our dock on Hayden Island in Portland to say Friday Harbor in the San Juans is just about 40 hrs.
Our first time up the coast was 2 days from Portland to Astoria, Astoria to Grays Harbor was 1 day, Grays Harbor to LaPush another day. LaPush to Nea Another day, Nea to Port Angeles another and from Port Angeles to Friday another day.
So 7 days of no rush. The trip back this year was 5 days down San Juans.

 

[BandB]

Having done the transit up the coast for two years, its no big deal. We pay close attention to weather and go when the weather says so. We have done the overnight and harbor hop. For us, its 30+ hours from Astoria to Port Angeles depending on tides, wind and current. Total run time from our dock on Hayden Island in Portland to say Friday Harbor in the San Juans is just about 40 hrs.
Our first time up the coast was 2 days from Portland to Astoria, Astoria to Grays Harbor was 1 day, Grays Harbor to LaPush another day. LaPush to Nea Another day, Nea to Port Angeles another and from Port Angeles to Friday another day.
So 7 days of no rush. The trip back this year was 5 days down San Juans.

We've heard a lot of people put an unreasonable fear in people over the trip between Portland and Port Angeles. Respecting the seas is smart but there are plenty of decent openings and easy enough to Harbor hop. The CG does an excellent job of providing current information on all the bars. We made three trips total between Astoria and Grays Harbor and between Grays Harbor and Port Angeles, a total of about 6 trips. We also communicated and learned a lot from the charter fishermen in Westport.

If it fit my plans, I wouldn't hesitate to make Portland my home port and then once a year head up to Washington, on to BC and Alaska. I would probably spend 60 days in Washington on the way up and 60 days on the way back. Up to 60 days doesn't require a permit. If you want more, get a permit, even renew it once. As a Washington non-resident with a boat from Oregon, you really have a lot of flexibility in Washington and could easily spend as much time there as you want. Plenty of options. If Portland fits in your cruising plans, then this can be a great option.

Two notes. If you're mooring for more than 30 days at a location in Washington, you must provide this exemption form to the marina.

http://www.dol.wa.gov/forms/420811.pdf

Second, it is my understanding and you should confirm for yourself, as a non-resident with a boat registered in another state, you can go through and spend 59 days as many times as you want. You can go in and out of the state. It's no different than most states. It's not 60 days a year, it's 60 at a time. The limit in a year without a permit is actually 6 months in any continuous 12 month period. Here are the specific rules.

RCW 88.02.620: Nonresident vessel permit. (<i>Effective until July 1, 2026.</i>)

So in a 12 month period you could spend 59 days a total of 3 times and not even require a permit. For more time, get a permit. If over 30 days at a mooring, fill out the paperwork.

We spent on one boat, registered and taxes paid in FL, 55 days, 2 days, 51 days, and 30 days, all over a 175 day period. All legal and no permit required at any point.

 

[Hamrow]

Thanks for all this info, I had more questions about Oregon but thought I was getting off this tax topic so I started a new thread.

 

[chinacowboy]

For future readers of this thread:

In summary my interpretation of the law (as best as I can tell) for non-residents is that you can stay in WA waters without a permit for 60 days and apply for two additional 60 day cruising permits. In total, you can stay in WA water for up to 6 months in a twelve month period and not be required to pay the use tax. Alternatively you can enter and exit every 60 days from washington waters and not need a permit but still can't be longer than 6 months in a twelve month period and if over 60 days need a non-resident cruise permit.

Alternatively you can purchase a one-year non-resident cruising permit but can not come back to Washington waters for 2 years.

I think where the confusion comes from is that there are two departments regulating this. The Department of Revenue and The Department of Licensing. The department of licensing says a federally documented vessel on or before the 61st day of use on Washington state waters, the owner must obtain a nonresident vessel permit as required under RCW 88.02.620.

To make matters even more confusing the DOR only counts consecutive use days but the DOL counts calendar days for the permit.

As for storing on the hard during winter this is a trickier issue. It can be done but affidavit's need to be filed every 60 days. However in the language their appears to be an exemption for boat not "in the water":

Vessels owned by a nonresident in Washington exclusively for repairs, alteration, or reconstruction.

An employee of the repair facility providing these services must be on board the vessel during any testing.

The owner must file an affidavit with the Department of revenue by the 61st day to verify the vessel is being serviced.

The affidavit must be filed every 60 days thereafter, as long as the vessel is located upon the waters.

Long story short get proper legal advice.

Here are some great resrouces i found as well:

Most helpful: Tax Exemption Flow Chart.

Additional:

https://dor.wa.gov/sites/default/files/legacy/Docs/Pubs/WatercraftVesselTax/BoatBroc.pdf

https://dor.wa.gov/doing-business/b...permits-vessels-owned-nonresident-individuals

https://dor.wa.gov/sites/default/files/legacy/Docs/forms/Misc/nonresvesselpermitapprvlapp.pdf

https://dor.wa.gov/sites/default/files/legacy/Docs/forms/Misc/NonResdntOutOfStateVsslRprAffdvt.pdf

https://dor.wa.gov/doing-business/b...c-guides/vessel-tax/nonresident-sales-and-use

**many thanks to @twistedtree et al for their contributions**

***I have probably made grave errors in my summary rely on your own personal judgement and consult a professional***

****free advice is only worth what you pay for it****

 

[twistedtree]

For future readers of this thread:

.... Alternatively you can enter and exit every 60 days from washington waters and not need a permit but still can't be longer than 6 months in a twelve month period and if over 60 days need a non-resident cruise permit.

From my interactions with DOR, they definitely would not agree with you on this. Your 60 days does not replenish until your 1 year anniversary. They were after me on this, but I had good records so they went away. You can't stay for 60 days, leave for 30 days, and come back for another 60. You can only go beyond the initial 60 days with an extension permit or a repair affidavit.

 

[BandB]

From my interactions with DOR, they definitely would not agree with you on this. Your 60 days does not replenish until your 1 year anniversary. They were after me on this, but I had good records so they went away. You can't stay for 60 days, leave for 30 days, and come back for another 60. You can only go beyond the initial 60 days with an extension permit or a repair affidavit.

Under 60 days does not require a permit and we were told we could return for another 60 under the same rules as often as we wanted. We were documented and were registered in FL and Sales Tax paid there.

So, clearly we've got contradictory information. All the more reason to get a local documentation agent.

 

[dhays]

This is a good example of how state laws can become internally inconsistent over time. Then add to the fact that the law is only the law (RCWs in WA Revised Codes of Washington). What really matters are the administrative rules on how those laws are implemented (WACs, Washington Administrative Codes).

A very wise lobbyist once told me "I don't care what you pass in the legislature, as long as I can write the rules."

 

[markpierce]

Some states will take their cut when you receive income, some will take their cut when you spend income, and there are those that will get you both ways, both coming and going.

 

[twistedtree]

Under 60 days does not require a permit and we were told we could return for another 60 under the same rules as often as we wanted. We were documented and were registered in FL and Sales Tax paid there.

So, clearly we've got contradictory information. All the more reason to get a local documentation agent.

Wow, in the same year? Did they say how long you need to leave for?

If this is true, it radically changes the practicality and viability of spending time in WA.

 

[BandB]

Wow, in the same year? Did they say how long you need to leave for?

If this is true, it radically changes the practicality and viability of spending time in WA.

Just proof you'd spent at least one day and one night elsewhere and were entering from out of state.

It's interesting that in South Florida we have an equivalent situation for all those who have foreign flagged vessels. They must leave the country to get a new cruising permit annually. I have a captain friend who took two one night trips to Bimini only a couple of weeks ago, just to return and get new cruising permits. 50 mile trip and one night out of the country is all it takes for that.

Now, I do know people who face similar rules in the SE with GA, SC and NC as they cruise and resolve them by short trips out of the state in question before they reach the 60 or 90 day limit of the state. So what we were told on WA made sense to us since it's consistent with these states. They keep the marina bills from the other states handy and present them if questioned, which is rare.

As to the WA situation, definitely radical differences between what you've been told and we've been told. We were never checked or asked any questions by anyone in the state so cannot tell you what the reaction would have been to our trips so no prove they would have agreed with the interpretation we were given.