Tax implications

[Bay Pelican]

One simple way of avoiding sales/use taxes, but it will require vigilance forever, buy the boat and register the boat in a state without a sales tax or a very low sales tax limit. Keep the boat out of Florida for six months, then register the boat in Florida.

The eternal vigilance involves making sure that when you cruise you never stay in a state long enough that the state will apply its use tax to you. Since you paid no sales tax the credit for sales tax paid is non-existent. Certain states have fairly short time periods. Maryland use to be 30 days. The time in which a boat is in storage or under repair does not count toward the 30/60/90 period in most states.


20 years later I still suffer from this issue in that I have never paid sales or use tax on Bay Pelican. If ever I return to the US it will be again be something to watch out for.

 

[twistedtree]

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.

Excatly. Our attorney said he always advises against buying an LLC because you don't want to assume unknown liability. The counter argument is that the seller can absolve you of any liability, but you will still get dragged into any dispute if there is one.

And the liability protection afforded to an owner by an LLC is minimal too where you are the operator. If you smash into someone's boat, people are going to come after you as the operator and the LLC won't help you.

 

[markpierce]

An advantage of a normally-depreciating boat is that its annual personal-property taxes are similarly reduced. Now they are less than that imposed on my home.

 

[denverd0n]

...do you want to be a slave to avoiding taxes or did you buy a boat to enjoy it?

This is the question that always gets me. And it amazes me how many people seem willing to be a slave to avoiding taxes over enjoying their boat.

Of course, if there are some simple things that you can do to reduce the tax bite then it only makes sense to do them. But when tax avoidance starts to intrude on enjoying the boat, I, personally, have to ask myself if it is really worth it.

(And in the past, when I have asked myself that question, the answer has always been a resounding NO!"

 

[rwidman]

Exactly. If paying taxes on a boat are a problem for someone, they should probably take up a different hobby like golf or mountain climbing.


When I considered retiring, many friends suggested that I move to this or that state because the taxes were low. My thought was to move to where I could best enjoy my retirement. Tax rates would only come into play if there was a tie between two states.


Considering trawlers, the personal property tax rate can often be lowered significantly by claiming the boat as a second home. In my state, the tax rate is lowered from ten percent to six percent (roughly) by claiming the boat as a second home. And unlike a land home, the tax on the boat lowers as the boat depreciates.


My experience is that my boat taxes are pretty minor compared to other boating costs like dockage and fuel use. And one thing that people often forget, put $100K in a good investment and it appreciates. Put $100K in a boat and the opposite happens. Figure it out and it may cost you $10K or more per year in depreciation alone.


Boating is not cheap and if it bothers you to spend money, it may not be the hobby for you.

 

[Group9]

This is the question that always gets me. And it amazes me how many people seem willing to be a slave to avoiding taxes over enjoying their boat.

Of course, if there are some simple things that you can do to reduce the tax bite then it only makes sense to do them. But when tax avoidance starts to intrude on enjoying the boat, I, personally, have to ask myself if it is really worth it.

(And in the past, when I have asked myself that question, the answer has always been a resounding NO!"

It's easy for me to say that because I live in one of the least taxed states in the country, and where I live, the tax on a used boat is so small it's embarrassing to complain about it. But, if I lived in California, or the northeast, and they wanted to take a huge bite out off my butt for it, I might not feel the same way.

 

[FutureLooper]

Point taken, but on the flip side of that why pay more taxes than you have to?
I'm not trying to live my boating life to micromanage tax costs, but I'm also willing to take advantage of any and all legal actions to reduce the up-front tax burden.
Its like filing taxes; Some people go to H&R Block, while others let tax attorneys and high dollar CPAs tackle it. To each his own.

 

[Donsan]

Governments do not look fondly on people trying to avoid paying taxes.

Geez, this country has 300 million plus millions of them. Maybe that's why we have an IRS.

 

[Seevee]

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.

GFC,
That may work, but if the seller put it into an LLC in his state and that state has a tax, it will trigger tax. He may get away with it.

And, agreed the sale of an LLC, corp or trust does not trigger tax on the assets it owns.

And if one used a corp, llc or trust to own a boat, the situs could be anywhere. doesn't have to be where the buyer lives. But the buyer isn't the owner, the corp, llc or trustee is....but the buyer may be the stockholder or beneficiary.

There's a lot of ways to avoid taxes, or minimize them. Some legal, some not so much.

I would argue to be aggressive to minimize taxes, not just sales tax. It's our right to do so. But could also argue to be prepared to defend your action at the hearing.

 

[Egregious]

People keep mentioning state laws. In NC and SC at least, it is up to the county, not the state. If you stay in one place long enough, they will find you and look you up via your HIN# and send you a bill. This is assuming you're CG documented and not registered with any state. My other boat is a runabout and is registered in NC. When I did that, the county where I lived as well as the county where I keep the boat both sent me a bill, and one of those I replied with a "boat not residing in this county" message and ignored it.

 

[Group9]

I guess there is "tax avoidance" and "tax evasion" and the difference is dramatic.

John Kerry Saves $500,000 By Docking 76-Foot Luxury Yacht Out Of State | HuffPost

From the article in the Huffington Post:

"BOSTON (AP) — Massachusetts Sen. John Kerry is docking his family’s new $7 million yacht in neighboring Rhode Island, allowing him to avoid paying roughly $500,000 in taxes to the cash-strapped Bay State.
If the “Isabel” were kept at the 2004 Democratic presidential nominee’s summer vacation home on Nantucket, or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes.
Rhode Island repealed those taxes in 1993. That has made the state something of a nautical tax haven.
Kerry spokesman David Wade said Friday the boat is being kept at Newport Shipyard not to evade taxes, but “for long-term maintenance, upkeep and charter purposes.”

 

[BandB]

People keep mentioning state laws. In NC and SC at least, it is up to the county, not the state. If you stay in one place long enough, they will find you and look you up via your HIN# and send you a bill. This is assuming you're CG documented and not registered with any state. My other boat is a runabout and is registered in NC. When I did that, the county where I lived as well as the county where I keep the boat both sent me a bill, and one of those I replied with a "boat not residing in this county" message and ignored it.

Actually the law is state. The collection and enforcement is county.

 

[Lecomte38]

Buy and document the boat in a tax free state (RI). Use a city in that state as the hailing port.

 

[kthoennes]

Buy and document the boat in a tax free state (RI). Use a city in that state as the hailing port.

We bought our boat in Somerset, MA but took delivery and transferred ownership just over the dashed chart line in Rhode Island waters just for that reason. And the first thing we did before the boat even left the MA marina was change the hailing port from Somerset to Yankton, South Dakota, although the town shown on the transom doesn't really matter for state or county tax implications.

 

[CDreamer]

This was published in 2011 so "FWIW" as an educational piece.

http://www.boattax.com/avoid-boat-taxes/

 

[denverd0n]

The hailing port that you put on your boat makes absolutely no difference in the sales/use tax that you may, or may not, owe. Absolutely none.

Where you register the boat may not make any difference, either, depending on the laws of the state where the boat is actually kept.

 

[rwidman]

Buy and document the boat in a tax free state (RI). Use a city in that state as the hailing port.

You have not read the entire thread. I suggest going back and doing so. You will then realize that your advice is incorrect. That is, unless you are willing to move to that state and live and boat there.

Otherwise, you are going to pay the taxes where the boat is kept and used.

 

[kthoennes]

...Otherwise, you are going to pay the taxes where the boat is kept and used.

And possibly taxes where the boat is purchased and where you take possession, although I'm not sure how Massachusetts enforces that as a practical matter at least in private party sales - but we were very cautious and technically precise anyway.

 

[BandB]

Wifey B: I see people talking about leaving their boat hundreds of miles away for six months or a year to avoid or reduce sales taxes. Others talk about keeping it hundreds of miles away to avoid property taxes. If I live on a state line and can put my boat a mile away on the other side and save huge money, then I'll do it, but if I live where I have to keep the boat some considerable distance away to save the no thanks. Boats are made for boating and not storing somewhere else. What price does one put on 6 months or a year of not being able to use it much? I put a lot, a whole lot. In fact, you might save just as much waiting to buy it as you save locating it elsewhere.

 

[yachtbrokerguy]

Florida has a provision for a non-resident to buy a boat here from a licensed broker and for a fee of $20.000 you can keep the boat here for 90 days. For $425, you can keep the boat here for 180 days. You must be a non-resident and move the boat out of Florida, show proof that you registered in some other location, and show proof that you left Florida. You don't need to show proof of taxes paid elsewhere.
Most states will give a credit for taxes paid to another state, but time elapsed may affect that.
If you buy a boat in some other state and bring it to Florida to keep here, you must pay Florida use and sales tax if you have owned it for less than 180 days.
If you are only visiting Florida we are glad you came and will charge sales tax on dockage, fuel and everything else. Thanks for visiting! If you stay a long time we a want a small registration fee.
If you buy an LLC, some states want proof that the LLC has been in existence for a certain amount of time, I think it may be a year for California.
Many states require marina operators to provide a list of the boats and owners to cross reference taxes paid.

 

[BandB]

If you buy an LLC, some states want proof that the LLC has been in existence for a certain amount of time, I think it may be a year for California.
.

Some officially require it, but others do it unofficially using the creation of the LLC timing as prima facie evidence that it was formed just to avoid tax. Then they may charge the tax plus penalty.

 

[Bay Pelican]

You have not read the entire thread. I suggest going back and doing so. You will then realize that your advice is incorrect. That is, unless you are willing to move to that state and live and boat there.

Otherwise, you are going to pay the taxes where the boat is kept and used.

Many / most / all? states do not require you to be a resident to register a boat in that state. Documentation is even more loose. Many states require you to register a boat in that state if it is kept (storage and repair usually excluded) there for so many days/months during the year.

Fully agree you pay taxes where the boat is kept and used. However a real cruising boat may never be anywhere long enough to subject herself to a state's use tax if the original registration was in a sales tax free state. Bay Pelican was documented and registered in Illinois for seven years without ever being in the state of Illinois. Whereas my pontoon boat has been registered in Indiana because that is where it is kept even though I am an Illinois resident. I paid Indiana sales taxes when I bought the pontoon boat.

I have faithfully followed all sales and use tax laws with respect to Bay Pelican.