Avoiding Sales Tax

[hellosailor]

Don-
The state tax collectors aren't dummies. Every state buys the USCG documentation list every year. If you document a boat in Florida, Floirda buys that list and they WILL send you a tax bill based on it. Similarly, since around 1980 (when Ct tax men started walking the docks and writing down the names of Delaware sham registrations) most states look for "out of state" vessels that are docked in their states. In DC I'm told they go around to the marinas asking who has an annual contract, on the logic that if you're paying for an annual contract, you're probably staying there. And if you're registered out of state...kaching, here comes the bill anyhow.

If the boat's home port address and all the other paperwork, including your residence, don't all match up, you can expect one or the other of those enterprising folks to eventually ask why.

I heard from one fellow (on a forum) that he'd bought his boat out of state, and kept it out of state for 20 years in a tax-free venue. Then circumstances brough the boat back to his official state of residency, 20 years after he bought it. And they served papers on him, for avoiding use tax plus penalites and interest for 20 years. (His state doesn't waive use tax after xx months or years, ever.)

Paperwork that gets into databases lasts forever these days.

Pete-
Sales tax, property tax, use tax, all of it is EASY for most of us in the US. You live someplace, there's one set of rules, you follow them. It only gets complicated when you try to play venue games in order to avoid or evade those rules. "leg it to Mexico on a bank holiday before anyone realises?" Folks have done that frequently with multiple mortgages here in the US. Buy it, take out the loan, try to flip it before the paperwork gets into the databases and meanwhile take out more loans because the first debt isn't showing up. That's usually a whole other criminal fraud charge. Some get away with it, others go to prison and pay fines. Of course, they get free medical care if they go to prison.

Charlie-
I never said the USCG asked for taxes. What I said is that IF you need documentation, you've now submitted paperwork with a state address on it. And that address and information is going to that state's tax authorities at the end of the year, and they're probably going to demand taxes based on it. And your insurer and bank are going to ask questions if that address isn't the same one you've used for everything else. Yes, you might have valid answers for the difference--but simply having a difference may raise questions. Staying in a marina in Mexico? Good, then you have insurance, and the address on that does match the one on all of your other papers, right? Another database your state tax authorities might be mining. If they haven't yet--remember, they can come back in ten years and still get it. Of course, any fool can counterfeit insurance papers and few marinas will bother to verify the policy really exists, but that's a whole other kettle of fish.

Hey, if you can get into Mexico from the Pacific NW without stopping in CA, and stay there with just state registration, that just might be the key. Dunno, never been to Mexico, that's why I asked. There's a BIG paper trail most folks leave behind, that can come back to bite you.

[foggysail]

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.

WISE WORDS!!!!

[foggysail]

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.

Yeah, but they need to continue transferring wealth from those who have to public employees retiring at 55, collecting "break the bank" retirement accounts. And whichever way CA turns, my state, Massachusetts tries to outdo them.

"The California controller has also estimated that retiree health benefits are underfunded by $51.8 billion, bringing the total pension deficit to $378.8 billion."

Soon, public employee pension issues will explode across the entire country!

Foggy

[John A]

I bought my boat in Califormia in Dec. of 1988, when sales tax was still a deductable item on state income taxes (double taxation, which was illegal at the time). The loan had a ballon payment that I refinanced five years later. The state billed me for the sales tax, thinking it was a purchase. I paid a para-legal $50 to write a 'go to hell' letter, which worked..

[Pete7]

Originally Posted by foggysail

Soon, public employee pension issues will explode across the entire country! Foggy

As they have in the UK because for years public pensions have been paid from general taxation not from savings public workers paid into so we are now broke

I just hope mine is safe

Anyway back to boat taxes. Does Canada do the same?

Pete

[Zydeco]

The best advice in this thread is “seek professional help”. Otherwise, just pay the tax and sleep well at night.

Just so you know where I am coming from, I am a lawyer and CPA. I specialize in litigating federal tax cases and federal criminal cases, sometimes both at the same time.

Before you hotfoot down to your local tax attorney’s office, keep in mind a few things:

1. There better be an awful lot of money at stake because tax lawyers ain’t cheap.

2. There is no easy answer to your question. Anytime the tax laws of more than one state are involved, it’s going to get complicated. Throw in domestic and/or foreign corporations and other entities and now it’s really a mess.

3. Every alternative will have some downside, some more onerous than others. You will have to decide what you can live with.

4. Essentially, what you will get from the lawyer after a bunch of expensive research is “I’m pretty sure this will work”. Opinions on whether a transaction will have the desired consequences (namely paying less tax without you going to prison, paying penalties, etc.) are usually expressed as “more likely than not.” In other words, it’s more likely that this will work than it will blow up.

5. The more states or other entities that are involved, the more likely that one or more of them are going to want a piece of the action.

6. If some state calls you on it, defending the transaction is on your dime, not the lawyer who gave you the opinion. You will have the privilege of paying more lawyers to litigate the issue to find out if the first lawyer was right.

7. This may come as a shock, but there are lawyers who will take your money and tell you what you want to hear. Just ask Wesley Snipes.

8. Just because some transaction worked for someone else doesn’t mean it will work for you. First of all, every situation is different. More importantly, “It worked for me” is often just a euphemism for “I didn’t get caught.”

9. The more you tie yourself in knots trying to avoid payment of taxes, the more likely you will get bit by some unintended consequence.

10. The more explaining you have to do, the more likely you will lose. There may be perfectly good reasons why your insurance policy, state registration, federal documentation, sales receipt, and drivers license all have different addresses, but as Ricky said, "Lucy, you got a lot of splainin' to do.”

If you are really adamant about avoiding or minimizing the sales tax, don’t let me talk you out of it. If that’s the road you choose, more power to you and good luck sir! But go down that road with your eyes open and understand that although the rewards may be great, the road is fraught with peril.

Whatever you choose, I hope it works out well for you.

[snort]

I'm pretty sure the 90-day vacation away from California idea for your boat has now extended to a full 12 months, if you plan on bringing the boat back to California.

[hellosailor]

Of course it IS possible to avoid sales tax AND not have to worry about it ever after.

You start by MOVING to RI or NH or any other venue that doesn't charge sales tax. Buy or rent and actually reside there. Register to vote, there and only there. Get you driver's license and passport issued from there and only there. Become a state citizen there and only there.

And enjoy the benefits of living in that state. Usually you can then go sojourn elsewhere, at sea for decades if you choose, as long as you make it public and clear that you intend to resume your residency once you get back home. To that home.

[savoir]

Originally Posted by snort

I'm pretty sure the 90-day vacation away from California idea for your boat has now extended to a full 12 months, if you plan on bringing the boat back to California.

Correct. It became 1 year on September 30 2008. Significantly, the term of 1 year doesn't mean " 1 year out of CA ", rather it means " spend more than half of the first year after purchase outside CA ". 1 year = how long you must prove where the boat was. Interestingly, time spent on refit in a CA boatyard doesn't necessarily count against the owner. That might help some owners.

This brochure might help.

http://www.boe.ca.gov/pdf/pub52.pdf

[IdoraKeeper]

Interesting that a simple question about California sales tax can generate such a variety of responses. Seems to me you walk in the front door and ask for the the number on the bottom line. Taxes, fees, insurance blahblah blah. If the number is too big you don't buy the boat. If you really want a boat and the taxes and fees are in the way then move, or forget about it.

Some of the things I have read here in this thread sound like Tony Soprano down at the Bing doin his thing. Obeying the law is not just for morons and little people. It costs lots to run a decent country and little to run a banana republic. Poor folks putting you in the poor house? Rubbish!

Could it be that what you believe in so much just really doesn't work that well?

[markpierce]

The advantage of paying the exceptionally-high California sales or use tax is that it is unlikely you'll have to pay something extra when the boat is moved to another state.

You guys who avoid paying your share of taxes using loopholes put an extra burden on the rest of us. Tax-avoiding politicians shouldn't be our mentors.

My federal/state governments have got me something like 30 percent coming and ten percent going with not nearly half of the $250,000 income the current US national government defines as offensively rich. Please don't tell me to smile.

[Doodles]

Originally Posted by hellosailor

Of course it IS possible to avoid sales tax AND not have to worry about it ever after.

You start by MOVING to RI or NH or any other venue that doesn't charge sales tax. Buy or rent and actually reside there. Register to vote, there and only there. Get you driver's license and passport issued from there and only there. Become a state citizen there and only there.

And enjoy the benefits of living in that state. Usually you can then go sojourn elsewhere, at sea for decades if you choose, as long as you make it public and clear that you intend to resume your residency once you get back home. To that home.

You are confusing income taxes with sales taxes. Most of what say is correct regarding income taxes, but sales taxes on a boat are a function of where the "boat" resides which can be very different from your personal residence.

[David_Old_Jersey]

Taxes come in two forms - cash and aggravation. On the former I might grumble and pay (or choose not to buy or not be able to afford to), on the second there comes a point where doing business just becomes too much like hard work.

If I need to be a rocket scientist to simply work out what I am meant to be doing (note not trying to avoid anything! - just trying to avoid being a criminal..........and I don't see anything wrong with that) or have to rely on a proffessional to tell me (with the risks that involves) then I am more likely to simply not bother with the transaction - or seek to do so elsewhere. Either way the tax authoritities then get what they are entitled to. Nada. and can spend it wisely

Gotta remember that with a moveable asset (that is intended to move tax locations - States / Countries) quite possible to end up paying taxes everyhere you arrive, on boat and personal wealth.........even (most) Socialists tend to balk when taxes reach 100%, but with taxes their is no such limit.

Funnily enough Kalifornia running "come visit us" ads on TV at the moment But having worked through chunks of the HIRE act I won't be coming anytime soon .........apparently me buying Coca Cola without informing the Federal Government and not paying my taxes to the US Govt (as all foreigners should do ) is a Capital offence. or summit

[GordMay]

Originally Posted by Zydeco

The best advice in this thread is “seek professional help”. ...Just because some transaction worked for someone else doesn’t mean it will work for you. First of all, every situation is different. More importantly, “It worked for me” is often just a euphemism for “I didn’t get caught.” ...

Thanks for sharing your specific expertise. All good stuff.

[hellosailor]

No, doodles. I said NH because the OP asserted they have no boat sales tax, and I said RI because the RI state web sites say they have no sales tax on boats. I'm not confusing sales and income tax. A fast web search on NH says "$10 to $1761.40 depending on size and propulsion with some exemptions" from How to Avoid Boat Tax - Legally which conveniently compares a number of states.

How and whether a boat can reside someplace without residency of any owner, is a whole other question and whoever wants to play the sales tax venue game needs to research that one on their own, for whatever magic solution they come up with.

As I've said on forums before...some states send out UNWAIVABLE jury duty notices based on vehicle registrations. You register a motor vehicle in them, and you will be required to physically appear for jury duty every several years, with no exemptions. Other states don't.

There are all sorts of gotchas once you step up to play in the big leagues with the tax men. Odds are that even a tax attorney won't be familiar with all of them.