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-   -   Buying an LLC (https://www.trawlerforum.com/forums/s62/buying-llc-52331.html)

Woodland Hills 08-01-2020 09:47 AM

Wow! So much misinformation.......

We bought the LLC that owned our boat a few years ago with no issues whatsoever. Just get a good attorney to draw up the papers and have the seller indemnify you for any outstanding debts that the LLC might have.

There will be no use or sales tax owed since the ownership of the boat will not change: itís still owned by the same LLC. This is the same whether the boat is recreational or commercial.

There is nothing scammy or sketchy about this, it happens every day when a business is sold: buy a plumbing company owned by an LLC and the service trucks come with the business without owing sales tax on them. This is all routine in the business world: tax avoidance, not evasion. All perfectly legal and it will help you when you eventually sell the LLC and itís assets since the next owner will save the tax too.

psneeld 08-01-2020 10:17 AM

And one more post saying it is OK could just as well be misinformation...


At least a lawyer has insurance to cover mistakes over advice on the internet.


The research that I have done all warns that LLCs to buy individual assets that are not held for increased valuement or any sort of business is sometimes seen by courts as "solely avoiding" liability and or taxes an does not afford the owner protection.


Now if done differently, different story.


At least research the crap out of it if you don't get an attorney....well beyond this thread.

Art 08-01-2020 11:27 AM

Quote:

Originally Posted by Woodland Hills (Post 906703)
Wow! So much misinformation.......

We bought the LLC that owned our boat a few years ago with no issues whatsoever. Just get a good attorney to draw up the papers and have the seller indemnify you for any outstanding debts that the LLC might have.

There will be no use or sales tax owed since the ownership of the boat will not change: itís still owned by the same LLC. This is the same whether the boat is recreational or commercial.

There is nothing scammy or sketchy about this, it happens every day when a business is sold: buy a plumbing company owned by an LLC and the service trucks come with the business without owing sales tax on them. This is all routine in the business world: tax avoidance, not evasion. All perfectly legal and it will help you when you eventually sell the LLC and itís assets since the next owner will save the tax too.

Not myself being a lawyer... but knowing some of the pitfalls that Bligh might face:

Your input regarding the trucks "being used" as business income producing entities would therefore be a well functioning portion of the LLC and therein tax exempt from, during and after purchase of the business.

However... in this case being discussed: if the PO of the boat set up an LLC specifically and only to best as possible skirt tax or other costs regarding the boat, without "truly" using the boat as a functioning portion of the business... could create considerable conflict with state tax authorities.

That is just another penny of my two cents. Again, I recommend to Bligh - Get a competent lawyer involved!

Woodland Hills 08-01-2020 11:32 AM

You could always call the State Board of Equalization or whatever the local taxing agency is called and ask them directly. I did in Florida and was transferred to the actual head of the agency in Tallahassee, who answered all my questions. I was told that the use of an LLC was “a well-known loophole” and was routine and legal.

SoWhat 08-01-2020 11:52 AM

I am reminded of MA Senator Kerry's attempt to claim his yacht was registered and docked in tax free Rhode Island when in fact it was docked at Nantucket all summer. $7Mil boat, owned by a PA LLC. He paid the $437K MA tax and annual $70K excise tax.

There is a difference between selling an actual business and a tax avoidance scheme.

MYTraveler 08-01-2020 12:05 PM

Quote:

Originally Posted by bligh (Post 906475)
Technically, the boat will not have a change of ownership. It is owned by a Delaware based LLC. Transfer of ownership of an LLC does not trigger sales tax. Sales tax is triggered when a boat changes ownership.

As logical as your intuition may be, California's law sees right through that. It deems the transfer of a majority interest in an LLC as a transfer of its assets, thereby triggering tax just as if the boat were sold directly.

Russell Clifton 08-01-2020 12:11 PM

[QUOTE=Art;906739]Not myself being a lawyer... but knowing some of the pitfalls that Bligh might face:
However... in this case being discussed: if the PO of the boat set up an LLC specifically and only to best as possible skirt tax or other costs regarding the boat, without "truly" using the boat as a functioning portion of the business... could create considerable conflict with state tax authorities.

I was told by a lawyer who specialized in maritime law almost that exact same thing. His advice was to buy just the boat, pay the tax, and sleep better at night. That's what I did.

Woodland Hills 08-01-2020 12:13 PM

Quote:

Originally Posted by SoWhat (Post 906745)
I am reminded of MA Senator Kerry's attempt to claim his yacht was registered and docked in tax free Rhode Island when in fact it was docked at Nantucket all summer. $7Mil boat, owned by a PA LLC. He paid the $437K MA tax and annual $70K excise tax.

There is a difference between selling an actual business and a tax avoidance scheme.

Tax avoidance is fully legal in all 50 states, tax evasion is not. One is under no obligation to pay one cent more in taxes than what is owed.

You example has nothing to do with buying an LLC whose sole asset is a boat, instead it is a dispute over state of residency and taxes owed as a result. This is a completely different matter and is governed by a different set of statutes and regulations.

All the forum “experts” can pontificate all they want, but having been through the process of buying a Delaware LLC, I know that this is a fully above board, completely legal process that saved us $24,000. And that in over two years, there have been no liens or outstanding debts connected with the LLC. Just do your due diligence.......like any other large purchase.

Woodland Hills 08-01-2020 12:17 PM

[QUOTE=Russell Clifton;906750]
Quote:

Originally Posted by Art (Post 906739)
Not myself being a lawyer... but knowing some of the pitfalls that Bligh might face:
However... in this case being discussed: if the PO of the boat set up an LLC specifically and only to best as possible skirt tax or other costs regarding the boat, without "truly" using the boat as a functioning portion of the business... could create considerable conflict with state tax authorities.

I was told by a lawyer who specialized in maritime law almost that exact same thing. His advice was to buy just the boat, pay the tax, and sleep better at night. That's what I did.

Too bad you didnít consult a tax lawyer instead...... asking a maritime attorney about tax law is like asking your cardiologist about that ingrown toenail thatís been bugging you.

mvweebles 08-01-2020 12:33 PM

[QUOTE=Woodland Hills;906754]
Quote:

Originally Posted by Russell Clifton (Post 906750)

Too bad you didnít consult a tax lawyer instead...... asking a maritime attorney about tax law is like asking your cardiologist about that ingrown toenail thatís been bugging you.

........ or asking people in Florida for advice about taxes in California is like the cardiologist/ingrown toenail.

Im not sure how this thread took a turn towards nefarious tax avoidance. My recommendation to consult a skilled expert was because the path to taxation in California is complicated, LLC or not. The liability can exceed the actual sales tax due as the same folks also deal with annual property tax of the boat and the slip where it resides (the so called shadow tax - the land beneath your boat).

Most states, you pay the sales tax and you move on with your life which is also true in California. Unfortunately. That's not the only tax you will be liable for during ownership. I suspect it's not that complicated for knowledgeable persons. But God forbid of you run afoul.

Peter

psneeld 08-01-2020 12:35 PM

I agree consult a tax attorney in the state you live....and/or call the state taxing authority that would review any LLC sales.



Don't believe ANY specific advice here.... as what happens one day in tax court isn't the same as the next for various reasons.

bligh 08-01-2020 12:36 PM

Quote:

Originally Posted by MYTraveler (Post 906747)
As logical as your intuition may be, California's law sees right through that. It deems the transfer of a majority interest in an LLC as a transfer of its assets, thereby triggering tax just as if the boat were sold directly.

Show me the 'law' you are citing

Swfla 08-01-2020 12:39 PM

OP states "I know that the boat is in a Delaware corporation. But that is all I know." Find out more from brokers that's why they are there. They have access to the agreement. Once you can give us more info, then any misunderstands we have can be cleared up. Hope that Bligh can provide more specific info. I'm sure forum members want the best for you. Three pages of posts based on this limited info is perhaps a symptom of COVID boredom.

SoWhat 08-01-2020 12:40 PM

Quote:

Originally Posted by Woodland Hills (Post 906751)
You example has nothing to do with buying an LLC whose sole asset is a boat, instead it is a dispute over state of residency and taxes owed as a result. This is a completely different matter and is governed by a different set of statutes and regulations.

The dispute was not over residency. The dispute was over where the boat was docked. If you dock a boat in MA for 6 months, you pay. LLC doesn't waive the requirement unless you apply for an exemption.

The taxman cometh.

bligh 08-01-2020 12:48 PM

That is property tax here in California. Not to be confused with sales tax.
Quote:

Originally Posted by SoWhat (Post 906763)
The dispute was not over residency. The dispute was over where the boat was docked. If you dock a boat in MA for 6 months, you pay. LLC doesn't waive the requirement unless you apply for an exemption.

The taxman cometh.


BandB 08-01-2020 12:56 PM

Quote:

Originally Posted by bligh (Post 906410)
Hey all, as you know I am in contract to buy a boat. But the boat is in an LLC so apparently I am in contract to buy an LLC that owns a boat. I dont think the broker has any clue what to do. I know that the boat is in a Delaware corporation. But that is all I know. Can anyone steer me in th right direction so I am informed as to what procedures I need to take and what documents I need to sign, have signed , and file and with what entity to file?

:)

Please, please, please get a local lawyer you trust to advise you. Some of the advice given in this thread is so far off base but then you asked a legal question on a boating forum. You need help as you said LLC and then Delaware Corporation which is the first clue you don't know as an LLC is not a corporation.

This has the potential of saving your a lot of sales tax dollars so worth a few hundred in legal fees. However, it also could potentially saddle you with debt or other obligations you have no knowledge of, coming along with the LLC and you need protection from that.

Also, even simple words in your sales contract can change what you're doing significantly, so even the best lawyer here wouldn't be able to give the advice you need without seeing it.

In general by buying an LLC you may or may not avoid state sales tax as some states still go after the transfer as a taxable event when an LLC changes hands. Also, by acquiring an LLC you acquire all it's assets and liabilities. Your potential loss is limited to them, no personal exposure beyond, but everything inside the LLC is at risk.

Nothing unusual about selling LLC's which own boats, planes, homes. Nothing though that a layman should do without an attorney.

Woodland Hills 08-01-2020 01:01 PM

[QUOTE=mvweebles;906758]
Quote:

Originally Posted by Woodland Hills (Post 906754)
........ or asking people in Florida for advice about taxes in California is like the cardiologist/ingrown toenail.

Im not sure how this thread took a turn towards nefarious tax avoidance. My recommendation to consult a skilled expert was because the path to taxation in California is complicated, LLC or not. The liability can exceed the actual sales tax due as the same folks also deal with annual property tax of the boat and the slip where it resides (the so called shadow tax - the land beneath your boat).

Most states, you pay the sales tax and you move on with your life which is also true in California. Unfortunately. That's not the only tax you will be liable for during ownership. I suspect it's not that complicated for knowledgeable persons. But God forbid of you run afoul.

Peter

I’ll say it again: tax AVOIDANCE is not nefarious. Tax avoidance is simply paying every cent you legally owe and not one penny more. One avoids paying taxes that are not owed. Evasion is the non-payment of legally owed taxes through illegal means, something very very different from the avoidance of paying un-owed taxes. If the powers that be did not want citizens using the tax code to their advantage they would change the rules, something they can do whenever they choose.

BTW, at the time we bought the LLC, we were California residents and had been for 30+ years. We also had bought and sold commercial real estate held by LLCs many times during that period of our lives. We also got a buy in from our California tax accountant on the Delaware LLC purchase as well as having a Florida attorney consult, write and review the contracts. We have dealt with the California BOE constantly for decades with no issues on this and other LLC transactions. It’s not hard: just hire an expert to advise and review.

Using an LLC to own an expensive asset is not rocket science! It is a routine everyday part of American business and is encouraged by the government through the tax code. There is nothing nefarious about it.

Comodave 08-01-2020 01:08 PM

People from other states will say just do it. They have never dealt with California BOE. Do not take anyones advice from Florida or anywhere else, get a lawyer that is intimately knowledgeable in California tax laws AND how it applies to boats and LLCs.

psneeld 08-01-2020 01:17 PM

https://www.thelog.com/ask-the-attor...o-own-my-boat/

from the above link...

"Similarly, corporate or LLC ownership will have almost no effect in California on the assessment of sales tax or on the annual assessment of personal property tax. It may be possible to transfer a boat into a newly formed corporation, or to purchase the corporation itself, without the assessment of sales or use tax. This may provide some savings when the boat will be owned by several partners, but the legal and practical requirements of these strategies are very complex and should not be considered without consulting a lawyer or tax professional.
Similarly, there may be some income tax benefits to corporate boat ownership, but your tax advisor will tell you that some form of business enterprise must accompany the operation and ownership of the boat."

Mark P 08-01-2020 03:48 PM

yes, as others have said, get a lawyer and, I would add, get an accountant, too! IMHO assets like these (boats, planes, buildings) are sometimes put in LLCs to take depreciation against taxes - there may be some recapture if you sell it or the LLC liquidates. Also, if you are buying the LLC itself be careful on other liabilities the LLC may have.


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