Avoiding Sales Tax

[savoir]

Originally Posted by John A

Tiger Wood's motor yacht was built in Portland, Oregon, one of the very few states that still does not have a sales tax.

Do people in California still take possession of their newly purchased boats in Ensenada, Mexico, to avoid sales tax, and then spend the season in the Sea of Cortez?

They sure do.

My recollection is that the boat must sit in Mexico for 6 months but someone who has done it recently could recount better than me.

[Doodles]

I'm a CPA with my own firm and a liveaboard sailor. I don't get my boating advice from a tax forum or my tax advice from a sailing forum. If the money is significant, get some professional advice on this.

[John A]

Originally Posted by Doodles

I'm a CPA with my own firm and a liveaboard sailor. I don't get my boating advice from a tax forum or my tax advice from a sailing forum. If the money is significant, get some professional advice on this.

Forums are used to exchange personal experiences. How it is interrputed is up to the individual reader.
We would welcome informed advice from a CPA.

[Olorin]

Originally Posted by skipmac

If you are a FL resident, buy the boat out of state and bring it to FL within 6 months you will be charged sales tax. I think most other states have a similar policy for residents......

Other option, FL now has a cap on the sales tax so you don't get hit quite so hard.

Florida boat sales tax cap goes into effect on July 1, 2010 - Legal & VAT Issues - SuperyachtTimes.com

According to this link you're limited to $18,000 if taxed in Florida.

[Doodles]

Originally Posted by John A

Forums are used to exchange personal experiences. How it is interrputed is up to the individual reader.
We would welcome informed advice from a CPA.

Sorry but I don't have any experience with California's sales tax laws and aren't really interested in doing the research, but as I said if the money is significant, you would be better off having a professional research it. It's easy to pull stuff of the internet (even from government sites) and get the wrong answer. With taxes its very much a case of "the devil is in the details". And the details are constantly changing so don't assume something that worked last year would still work today.

I'm not trying to scare anyone. I'm as much a DIY-type as the next guy, and if the amount is not that much by all means have a go at it, but if its bigger bucks why not spend a little for some professional advice?

[night0wl]

Originally Posted by nes

So, lets say you buy a big boat to live aboard, and lets say it sets you back $500,000. In California the tax rate starts at 8.25% and goes up from there ($41,250) and oh by the way, in California you also get to pay Property tax of about 1.1% ($5,500) every year. So, that first years tax is about $47,000!

I am looking to do a live aboard situation, and would certainly consider spending that much on a house here, but the tax on the $500,000 house would only be the property tax. Why would I buy a boat in this state?

When I bought our boat, our dealership had the ability to put you in touch with lawyers that could arrange an offshore corporation setup that would technically own the boat. You would then own shares in the offshore corporation (100% sole owner). That way, you would avoid the ~7% sales tax in florida. But the cost of the corporation was $5000-$7000 in fees and filing...so for my boat, it just didn't make sense. Plus, there are ongoing corporation filing fees for offshore entities as well.

If I was spending that kind of coinage on a boat (on the order of $500k+ and facing a $30,000 tax liability for state sales tax)...I'd look at an offshore corporation to avoid the taxes. May make selling the boat to international buyers easier too. It may get hairy if you take a loan out on the vessel, as USCG documentation is required for most marine mortgages.

At a minimum, I'd look at buying the boat and parking it in Rhode Island for 6 months!

[David M]

Where I live in California the sales tax rate is 9.75%. It varies slightly by county. I really don't fault people for thinking up ways to try to avoid this.

[hellosailor]

"If you bring the boat to FL, you will pay florida tax -- either as a use tax or a sales tax."
I know Florida CAPPED THE TAX this year. I think the maximum sales tax on a boat purchase there is $18,000 now. This was done expressly because folks were taking legal steps to avoid the sales tax entirely, and the pols finally figured out that if they made it cheaper to just pay the tax...the megayachts would pay it to Florida.

[Charlie]

Originally Posted by nes

I am looking to do a live aboard situation, and would certainly consider spending that much on a house here, but the tax on the $500,000 house would only be the property tax. Why would I buy a boat in this state?

And why did boat building in California dry up. The tax was a contributing issue.

The law on how long the boat needs to stay out of state has changed a few times. I think the current time frame is 90 days. There were also some problems with getting the boat out of California because once it was purchased if it touched California again it would be subject to tax. So if you had to say buy fuel or hide fro a storm you were subject tot he tax. You'll have to find someone on top of the current state of the law. People in San Diego seem to know about it.

My experieince with the law was this. A Montana Corporation which I own purchased my boat in Canada and had to leave Canada right away or be subject to Canadian taxes. We went from Vancouver to Friday Harbor. Spent the night in Friday Harbor and then returned to Vancouver Island. I moored the boat there for a few months and then took the boat out of Canada and repatriated it under a work on the boat visa. This allowed me to keep it in Canada till the work was done. I had the boat repowered and the standing rigging replaced. I didn't have to pay provincial taxes on the work performed b/c it was a US boat under the special visa. When the work was done the boat had to leave Canada or else the local taxes were due. This time I went to Roche Harbor. Then I returned to Canada under a regular Visa. From there I kept the boat in Canada at a friends dock. I then had to keep the boat out of California for a few more months but if it stayed in Canada I was subject to their tax and Washington State wanted tax if I kept it there. I decided to bring the boat to Oregon and leave it on the hard for the winter. Oregon has no sales tax. At that point I applied for the waiver since I had owned the boat for more then a year. California granted the waiver from the tax after I had submitted a lot of documentation showing that the boat had not been in California. I saved a little more then $15k. Was it worth it? Instead of paying the tax we had some nice sailing trips in the San Juan's and Desolation Sound. The kids still talk about different things we did in our time in the PNW. On a financial scale I probably broke even with alll the different trips that I made to Canda etc. but instead of sending money to Kalifornia for them to waste I had some nice vacations.

One more thing is that you can't buy the boat with the intention of keeping it in Kalifornia. That invalidates the waiver. One thing that I was so upset about was that I would have to pay the tax when I was just passing thru Kalifornia on the way to Mexico the tax really didn't seem fair.

[hellosailor]

Charlie-
Hows does "Mexico baby" feel about boats with just state registrations, as opposed to the documentaiton you won't get until the boat has a home someplace where taxes have been demanded?
Assuming you can get the boat there without touching Cali on the way.<G>

[sailorboy1]

I don't think homeport as far as USCG documentation has anything at all to do with where you live. And the USCG doesn't care about whether a State sales tax got paid.

nothiung stops you from buying a boat in Ca and using your Fl address to USCG document it and homeport it.

[cchesley]

Charlie pretty well nails the issue. It's gonna cost you no matter how you do it. I ended up basically paying my sales tax in two payments. First, 5% to Maine, then the balance to Washington a year later. I see it as being part of the purchase price. Painful, yes, but almost impossible to avoid long term unless you want to stay out of the country indefinitely. Typically, those offshore corporations result in a foreign flag for the boat. Try being a 'foreigner' here these days with Homeland Security. T'ain't worth the hassle IMHO AND you have to stay out of the country for 6 months every year anyway (or state).

I found that since I was already writing big checks for the new boat, it was easier then to pay up then it would be now.... just sayin'. But if your value system is to avoid giving it to the gummint then you'll be happy doing or spending whatever it takes to keep their mitts off your hard earned money. YMMV.

[John A]

Originally Posted by David M

Where I live in California the sales tax rate is 9.75%. It varies slightly by county. I really don't fault people for thinking up ways to try to avoid this.

Also, different California counties interrupt their own property tax rules differently. Notify your county tax assessor before leaving.
If you maintain a home address in some California counties and pay state and local taxes while cruising, save all documentation about your boats travels, to avoid being billed for back property taxes on your boat when you return.

[Pete7]

Good grief, I thought Europe's VAT rules were complicated and expensive but paying tax on buying an old boat in one county moving it to another county and paying more tax, that's taking the biscuit

What happens if you just buy it and leg it to Mexico on a bank holiday before anyone realises?

I guess the US really is a foreign country

Pete

[Charlie]

Originally Posted by hellosailor

Charlie-
Hows does "Mexico baby" feel about boats with just state registrations, as opposed to the documentaiton you won't get until the boat has a home someplace where taxes have been demanded?
Assuming you can get the boat there without touching Cali on the way.<G>

HS:

USCG didn't demand any taxes on my boat. It was the States that were wanting the $$$$. I'm sure it is worked out pretty well because boats often go to Ensenada for 90 Days and then come back to California. They can return to CA for repairs and/or warranty work. It is a tangled web and the number has to be pretty big before it is worth while.