Tax implications

When purchasing a vessel with a price tag north of a few 100k, are there 'strategies' that can be used to avoid certain taxes?

I presume that buying in a state with no sales tax is one way, but what happens when you go back to your home state and register the vessel? Surely you'll get hit with use or personal property tax?

Also as an example, lets say my boat is registered in TX and we spend a good chuck of a year in FL. Will FL try to hit us with some sort of tax?

Thanks for the help!

You will pay the taxes. Some states have lower tax rates than others but do you want to boat where the boating is good or where the tax rate is low?


If you can afford the boat, you can afford the taxes.


And yes, registering the boat in TX and using it in FL will not get you out of paying taxes in FL.

The state in which you register the boat will have the first crack at the sales (sic) or use taxes. Then there are certain states if you stay longer than 30/60/90 days will charge you use tax at their rate but give you credit for taxes you have already paid.

Florida will let you off the hook if you have kept the boat our of Florida for 90/180 days(?) and did not indicate a plan to bring the boat to Florida initially.

Well, we hope to boat all over; Great loop then who knows where. So if buying a boat in one state saves taxes, why not take advantage of that?

Regarding the FL tax, when does that kick in? If we are TX residents and our boat is registered in TX, is there a time period we have to be in FL before they try to tax us? Out of curiosity, how would FL even know how long we were there?

If you are in Florida for more than 90 days then you are required to register the boat. When you do that, if you have not owned and used the boat in another state for at least six months, then you may owe use tax. You will get a credit for any tax paid in another state. Florida caps their sales/use tax at $18k.

As to "how will they know?" Well, there are some jurisdictions where they have people walking the docks looking for violators. If you are wondering if it is possible for you to break the law, of course the answer is "yes." There are people who do it all the time. Some of them get caught, some of them don't (though, if you make a habit of it, the odds of eventually getting caught are pretty good).

I'm not a lawbreaker, was just curious how they would find out. Never saw such a thing on Lake Erie.

Also, I am formally renouncing my intent to do the great loop. Specifically, stopping in FL.

There are people whose job it is to help you pay the lowest possible taxes. They call themselves "CPA's".

I think this will require a maritime tax attorney and a cpa.

It can be done and I did it.

Buy a boat and don't worry about what state you buy it in. Almost all states do not require registration and payment of sales tax if you certify that you will remove it from that state in x days, usually 90.

Then federally document the boat for title purposes.

Then start your cruising plans. As long as you don't stay in any one state more than 90 days you will not be required to register there or pay their use taxes.

As best as I can tell, it is entirely legal to do this.

David

If a Texas boat spent, say, 80 days in FL, then made a side trip to the Bahamas with the associated documentation, and returned to FL, would the clock start over?

CDreamer said:

If a Texas boat spent, say, 80 days in FL, then made a side trip to the Bahamas with the associated documentation, and returned to FL, would the clock start over?

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No.

One of the common and recurring themes on this and other boating forums is "how to avoid taxes on boats". Basically, it's almost impossible to pull it off legally. I suppose if you cruise constantly and never stay in one state more than that state's time limit, you could, but do you want to be a slave to avoiding taxes or did you buy a boat to enjoy it?

To answer your question, most states tax you if you stay in their state more than X number of days per calendar year. You can't just make an overnight trip to another state or country and return.

For accurate information, you can't rely on a web forum, you need to contact each state's authorities and ask them about taxes.


BTW: Federal documentation does not relieve you of sales or personal property tax in any state. In some states, it relieves you of registration fees but not taxes.

If i'm reading that right an owner would pay sales tax upon initial purchase, and then use/personal tax for each state in which he spends more than the state's allotted time?

Sounds like a never ending tax burden if you want to visit the country via water.

FutureLooper said:

If i'm reading that right an owner would pay sales tax upon initial purchase, and then use/personal tax for each state in which he spends more than the state's allotted time?

Sounds like a never ending tax burden if you want to visit the country via water.

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It's no different than doing it by car or RV. Spend a week or a month and you're visiting. Spend three months and you're living there.

FutureLooper said:

If i'm reading that right an owner would pay sales tax upon initial purchase, and then use/personal tax for each state in which he spends more than the state's allotted time?

Sounds like a never ending tax burden if you want to visit the country via water.

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Every state is different. However, in WA if you can show that you paid sales tax on the boat previously, you don't have to pay the sales tax again. There are some time requirements involved but the point is you don't get taxed indefinitely. However, you would have to register the boat in WA if you stay over a given number of days. In WA, you pay an excise tax with your registration. This happens yearly whether your boat is documented or not.

FutureLooper said:

When purchasing a vessel with a price tag north of a few 100k, are there 'strategies' that can be used to avoid certain taxes?

I presume that buying in a state with no sales tax is one way, but what happens when you go back to your home state and register the vessel? Surely you'll get hit with use or personal property tax?

Also as an example, lets say my boat is registered in TX and we spend a good chuck of a year in FL. Will FL try to hit us with some sort of tax?

Thanks for the help!

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The best advisors in this area are the boat Documentation services. They're aware of all the ins and outs.

Every state is different and sometimes the laws of adjacent states may conflict and could lead to the worst of both worlds hitting you.

Initially you have the issue of sales and use tax. That's based on where you purchase, how long you'll have the boat there, where you'll be taking it, and where you reside. While sales tax varies, the likelihood of totally escaping it is slim unless you both live in and intend to keep the boat in a state with no sales tax.

Registration is generally not expensive, but it often is what sets sales and use tax in motion. Once they have been paid, you may even find yourself needing to register in more than one state as you use the boat, but the registration cost is mild, just the other taxes it can lead to.

Property tax is assessed annually on the boat, based on where it physically is but with some caveats. Another state may claim they're the state of principal use. Each state has different rules.

In the case of Florida, they have a fairly high sales tax but limited to $18,000 which comes into play on $300k boats or so. Florida, however, has no property tax on boats so ultimately is among the lower cost places to keep your boat.

By contrast, SC caps the sales tax at $300 but there's a personal property tax based on the boat's estimated value every year.


There's a private citizen in my area who makes it his business (it is not his business) to ride around in his personal boat and make note of any expensive looking boats in the area and making sure that the county is charging the owners personal property tax on the boats. He turned in a large yacht one year and the tax bill was just under $300K. That's the tax on the boat for one year!

FutureLooper said:

If i'm reading that right an owner would pay sales tax upon initial purchase, and then use/personal tax for each state in which he spends more than the state's allotted time?

Sounds like a never ending tax burden if you want to visit the country via water.

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Not so.

In every state if you are liable for their use tax because you stayed there long enough, you get a credit for sales/use tax paid to other states.

Also for states with a personal property tax, that tax is due if you were in their state on January 1 and stayed beyond the statutory limit. So it would be very difficult to be taxed twice for personal property.

But if you are a continuous cruiser like a looper, reread my post above.

David

djmarchand said:

............

Also for states with a personal property tax, that tax is due if you were in their state on January 1 and stayed beyond the statutory limit. .........

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You don't have to be there on January 1 to be liable for the tax.

WesK said:

You don't have to be there on January 1 to be liable for the tax.

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No, and being somewhere on January 1 does not absolutely make you liable. It may lead to you being charged but if you're not liable you can get that charge reversed. We knew we were going to be in California on January 1 and that they did very carefully walk though the marina. However, we got with the tax office in San Diego in advance and provided all the evidence that California was not our principal place of use and we were just passing through on our way to Florida. No tax.

Here's another thought: If you're buying the boat from a private owner, have the owner form an LLC (you pay the costs) and then title the boat in the name of the LLC. Then, instead of you buying a boat you're buying a company (the LLC).


The reason for this is that when an LLC sells, and the assets of the LLC go with it there is no sales tax. This is most often done when a business sells and the cars and trucks that are owned buy the business go with the LLC at time of sale.


No different with a boat. Now, as a caveat, the gubmint will look somewhat askance at your transaction but you often see this done on larger boats.

In most states, personal property tax is levied at the city/county level and will vary accross the state.

Massachusetts Senator Kerry formed a PA LLC, docked the 7 mil boat in Newport RI (rather than at his summer home in Nantucket) and managed to avoid $437,000 in MA sales tax. Public uproar forced him to pay although legally he didn't have to.

A couple of things to add.

If you bring your boat into the state where you are a resident, sale/use tax is typically immediately due. This would be the case if you bought the boat in your home state as well. Sales/use tax is typically not paid when you buy a boat in a state where you are NOT a resident, and remove the boat from the state in their prescribed time frame.

Conversely, exceptions apply when taking a boat through a state where you are not a resident. No tax is due unless you stay long enough to start looking like a resident. As mentioned, this is anywhere from 60-180 days depending on the state. If you hang out too long, they want you to comply like a resident and register and pay any taxes due.

If you trigger taxes in any given state, they typically give credit for taxes paid to another state. Some will let you off the hook completely if you have paid any amount anywhere else. Some will even let you off completely if you have simply owned the boat for some minimum amount of time even if you haven't paid any taxes elsewhere. Other states will credit you for the dollar amount paid elsewhere, but charge you an additional amount to make up the difference if their tax rate is higher.

Back to your original question, if you buy the boat outside your home state, and you don't take the boat back into your home state, and you don't stay in any jurisdiction longer than allowed, you can operate without ever paying sales or use tax. But I agree completely that such operation needs to be consistent with your boating plans. You buy a boat to use it, not to run from the tax man. Taxes are a consideration, but don't let the tail wag the dog.

GFC said:

Here's another thought: If you're buying the boat from a private owner, have the owner form an LLC (you pay the costs) and then title the boat in the name of the LLC. Then, instead of you buying a boat you're buying a company (the LLC).


The reason for this is that when an LLC sells, and the assets of the LLC go with it there is no sales tax. This is most often done when a business sells and the cars and trucks that are owned buy the business go with the LLC at time of sale.


No different with a boat. Now, as a caveat, the gubmint will look somewhat askance at your transaction but you often see this done on larger boats.

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In some cases they will do more than look askance. If the timing is such they might consider it done for tax avoidance reasons only and still assess the tax. I know of that being done in NC on a couple of occasions. So, one best document the forming of the LLC and the business purpose for doing so.

There is one other issue in some states as well. Property taxes often differ on LLC's and Corporation holdings vs. Personal. For instance, in Florida, a home owned by an LLC is not eligible for the homestead exemption.

For those reasons and others, I'd consult with a knowledgeable documentation service and, if forming the LLC, with an attorney. I'm not disagreeing with anything GFC is saying, just advising one does such a transaction carefully and with proper advisement.

GFC said:

Here's another thought: If you're buying the boat from a private owner, have the owner form an LLC (you pay the costs) and then title the boat in the name of the LLC. Then, instead of you buying a boat you're buying a company (the LLC).


The reason for this is that when an LLC sells, and the assets of the LLC go with it there is no sales tax. This is most often done when a business sells and the cars and trucks that are owned buy the business go with the LLC at time of sale.


No different with a boat. Now, as a caveat, the gubmint will look somewhat askance at your transaction but you often see this done on larger boats.

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Or at least for Florida, if you have a legitimate charter business for example, and create your own LLC, when you purchase the boat in the name of the LLC, you do not owe sales tax (it's a "wholesale" transaction). There are many, many rules to follow to be legitimate. Seek wise counsel.

Anyone thinking of a scheme (like an LLC or offshore registration) to avoid taxes on a boat would do well to consult with a qualified tax attorney (not an Internet forum) before doing so. Governments do not look fondly on people trying to avoid paying taxes.

Marry the owner. Gift the boat. Divorce the owner.

When we bought our current boat it was owned by a LLC. So we had to make a decision weather to buy the LLC or just buy the boat. After a maritime lawyer reviewed the documents we both concluded it would be best to just buy the boat. He thought it just seemed that it was all done to avoid tax's and it would eventually catch up with me. I sleep better at night knowing I won't be getting a $30,000 tax bill in the mail years down the road.

Russell Clifton said:

When we bought our current boat it was owned by a LLC. So we had to make a decision weather to buy the LLC or just buy the boat. After a maritime lawyer reviewed the documents we both concluded it would be best to just buy the boat. He thought it just seemed that it was all done to avoid tax's and it would eventually catch up with me. I sleep better at night knowing I won't be getting a $30,000 tax bill in the mail years down the road.

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The other thing that sometimes people overlook in purchasing an LLC is that there may be liabilities you're not aware of and they come with the LLC.

Many people who own boats in the northeast and paid the sales taxes in their home state cruise to Florida every fall and spend 4-6 months there living aboard. I have never heard of anyone having a problem.