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Old 01-09-2015, 08:55   #16
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Re: Avoiding California tax (legally)

Sorry. Hit reply to quick. Continuing. We visit and enjoy the boat once a week or so, which is awesome; we love Ensenada. And I usually score uncrowded surf on the way down, which is also awesome.

Crossing the border going south is free if you ask for a seven- day visa. You may not need a passport going south, but you sure need one to get back. If you are going to cross a lot, get a SENTRI pass; it will cut your northbound crossing from hours to minutes.

We used Dona Jenkins for the documentation and Paul Trusso to structure the offshore delivery.


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Old 01-09-2015, 09:56   #17
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Re: Avoiding California tax (legally)

The OP was asking about buying a boat that needs work and he will do the work himself.

Taking offshore delivery and then bringing the boat back to California to work on it POSTPONES the USE (sales) tax only if:

- any usage subsequent to purchase is only for maintenance or repair
- repairs are done by LICENSED service providers
- once repairs are completed the boat leaves California

If you return to California at some point in the future the USE tax may then become immediately due.

My attorney thinks, but is not sure, that living on the boat while doing the repairs will make you liable for the USE tax because the owner is then USING the boat for personal reasons or advantage and not the repair or maintenance reasons envisioned in the California code.

In any case, the OP will need to show receipts for work done on his boat by a licensed mechanic, i.e. one who pays sales tax and business tax to the local government. Those receipts must show regular progression towards full repair of the boat. If there are long periods of inactivity, then you must be able to document that you were waiting for a part to be fabricated or delivered and that no additional work was possible until the part was received.

No receipts - the tax bill is due.

If someone can document a different experience avoiding USE tax by taking offshore delivery and then bringing the boat back to California for work, I'd appreciate it because my maritime/tax attorney has convinced me that I can not work on the boat myself. Or, if I do most of the work myself, I must still show payments to a professional service provider who in turns pays sales and business tax to California. Cheap, and licensed, mechanics in San Diego bill a minimum of $60/hour so just a few hours of their bills will cover the USE tax on an inexpensive boat.

The OP is talking about a $5,000 boat so USE tax in San Diego would be about $417. I'm not sure it makes sense to engage in the Ensenada migration with all it's associated costs to avoid that cost.

The thing to remember is that hundreds of thousands of boats have been sold and repaired in California. The tax authorities have seen and understood every possible scheme employed to avoid paying USE taxes to California for those boats. The BoE has tens of thousands of prior adjudications to cite when someone tries to avoid the tax, which California wants paid to them. All they have to do is say "Pay It" and from then on it is your responsibility to prove that tax is not due.

In California - you owe the tax they say you do unless you can prove you don't.
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Old 01-09-2015, 10:16   #18
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Re: Avoiding California tax (legally)

Laws have changed a lot since I was in the delivery business out of San Diego but I did fairly well delivering boats back and forth between SoCal and points south. There was even a group called the Ninety-One Day Yacht Club who routinely moved their new (to them) boat out of CA when they purchased it for 91 days to avoid Sales tax. That time has increased to about a year now, I understand.
The other observation I would make involves the CA Franchise Tax Board out of Sacramento. Whoever said they were ruthless and never ending is correct. I purchased a boat in Washington State, took her to Canada and cruised for nearly 6 months before coming back down the coast to San Diego. Two years after I sold her they came after me to prove that I didn't buy the boat in CA. I told them to prove I did and their response was to file a lien on any assets I had anywhere in the U.S. For over $20K! Guilty until proven innocent!
I ended up having the travel back to Washington State and Brithish Columbia, collect fuel receipts from there, canvas every marina we had stopped in, some had gone out of business or changed hands, and try and get documentation of where I had stayed aboard, run down the broker and secured my old Bill of Sale which I had misplaced all to satisfy some pinhead bureaucrat in Sacramento.
As a result the lien was finally removed but I would never live or work in that state again. Just beware that these blood suckers have absolutely no interest in anything but collecting what THEY think they are owed regardless of the facts.
I would advise anyone thinking of buy or keeping any private property in the state to run away and keep running as fast as they can.
If you do choose to buy something in that state, have it delivered to Nevada, Oregon or Arizona and make it part of the sales agreement to consummate the sale outside of CA. Cheers, Phil
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Old 01-09-2015, 10:18   #19
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Re: Avoiding California tax (legally)

TheOP said:
"My intention is to stay only long enough to get the boat seaworthy, and then go traveling state to state, and later internationally"

How will that work?

The only state close to California is Oregon and it is hundreds of miles uphill to the closest Oregon port. That will be a difficult and dangerous trip from early November until late April.

It seems that if you buy the boat in California anytime before late February you are committed to staying in California for more than 4-months.

The next closest state is Washington which is just as aggressive as California in collecting sales and property tax. And, you have 500 miles of very difficult and dangerous coast wise travel to get from southern Oregon to Puget Sound where you will find adequate small boat facilities.

Florida is the next closest US state and that is over 4,100 NM from SoCal.
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Old 01-09-2015, 10:31   #20
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Re: Avoiding California tax (legally)

There are two statutes to consider. I have an ongoing issue with the tax board. They offered a 30% refund of the taxes I paid in protest for this.
The first is offshore delivery and bug out of CA. They say, if you return to CA waters in less than the year time, you are liable for taxes.
The second statute regards intent. If you buy with intent to use it out of California waters (the time limit of that use is not specified, or I could not find it), then you can remain in CA waters for an unspecified time ( I believe 3 months would be acceptable for preparing) then take the boat out of CA for the out of state use. I think that time frame should be substantial, then you can return to CA and not be liable for the tax, or so the tax laws state. While in CA before leaving, the boat can not be used for anything other than working on it. Any pleasure sailing, can prevent the legal avoiding of state taxes. They are relentless and will demand proof that you did not use it, which is difficult or impossible, but doable. They will also delay, since I paid the taxes under protest, now I have to wait for two more years before a hearing can take place. The good news is that hearings can be local if you are in CA.
Obviously, the state wants your money and will work hard to bend all rules to get money. I suggest that if you want to buy in CA, work on the boat and then remove it from the state, contact the state franchise tax board and notify them of your intentions before purchasing. Then get a letter from them confirming your notice and intent. After that, document your work on the boat, make it as fast as possible and then leave the state for a significant period. KEEP ALL DOCUMENTS PROVING YOUR ACTIONS, do not lose them and you should be fine. No one suggested setting up the transaction notice with the State Franchise board before purchasing,but that seems like the best way. Defuse it before you act and it should be, excuse me for the cliche, smooth sailing.
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Old 01-09-2015, 10:32   #21
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Re: Avoiding California tax (legally)

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Originally Posted by Departing2017 View Post
We're going through this right now. We took delivery three miles offshore. Sailed back into San Diego to drop off seller (acceptable under state tax law) and dropped the vessel at the yard for a bottom job (also acceptable as long as receipts document all dates the boat is in California).

Once the work was done, we sailed her to her new slip in Ensenada


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What does 3 miles do for you? International waters are at 12.

The you real point is that you had intent, and then executed that intent, by not owning, operating, and locating the boat in California. You could have executed the paperwork anywhere (not to mention it could have been done with neither party looking each other in the face).

For example we bought our boat, which at the time was located in Maine. The previous owner lives in Maryland, we live in Massachusetts. We signed and notarized our side in MA, he did his in MD, broker in Maine handled transaction and escrow.

Brought the boat back to MA from Maine, and paid our taxes to MA dept of revenue.

Due to excessive delays with USCG documentation services, all of this happened months before any hailing port was "established".


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Old 01-09-2015, 10:46   #22
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Re: Avoiding California tax (legally)

If you buy a boat in California the tax man will take a bead on you and try to never let go. You will receive bills in the mail years after you leave the state. Your plan is a sound one. Buy it out of the water where you plan to do the work. While it's out to work on the clock shouldn't even start. When it's wet the statute you quoted said the waters most used.You can do a lot of sailing in Cali in 120 days before you have to leave. Meanwhile, while you're doing your repair work,shift the registration to wherever. No need to complicate things.Best of luck.
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Old 01-09-2015, 10:49   #23
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Re: Avoiding California tax (legally)

Man, find a boat in Mississippi....
My boat buying experience:
Met guy with boat
decided I wanted boat
Guy wrote me a bill of sale
and we went to a Notary Public to get that and the transfer of documentation (US documented vessel) notarized
The boat was also registerd in MS which I didnt want to continue doing so I emailed the state and was told. "OK, just don't register it in your name its not required here if it is a documented vessel"
and its that simple.
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Old 01-09-2015, 11:10   #24
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Re: Avoiding California tax (legally)

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What does 3 miles do for you? International waters are at 12.

The you real point is that you had intent, and then executed that intent, by not owning, operating, and locating the boat in California. You could have executed the paperwork anywhere (not to mention it could have been done with neither party looking each other in the face).

For example we bought our boat, which at the time was located in Maine. The previous owner lives in Maryland, we live in Massachusetts. We signed and notarized our side in MA, he did his in MD, broker in Maine handled transaction and escrow.

Brought the boat back to MA from Maine, and paid our taxes to MA dept of revenue.

Due to excessive delays with USCG documentation services, all of this happened months before any hailing port was "established".


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Old 01-09-2015, 11:14   #25
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Re: Avoiding California tax (legally)

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What does 3 miles do for you? International waters are at 12.


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Three miles is the California state line. I know it sounds bizarre, but it's part of the deal. We had to take photos of the GPS and of the day's paper.


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Old 01-09-2015, 12:00   #26
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Re: Avoiding California tax (legally)

Zee Drach,don't listen to the sea lawyers going on about "INTENTIONS".It isn't illegal to avoid a situation that avoids having to pay a tax. Practicing law without a license is illegal! I was a state certified and licensed yacht salesman IN California. Buy a boat out of the water, fix it up, LEAVE. While you are fixing it register it out of state,effectively, EXPORTING it. When you launch your boat, you have 120 days to get out of LA LA land and up to your new base of operations. K.I.S.S.
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Old 01-09-2015, 13:05   #27
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Re: Avoiding California tax (legally)

As others have said: Internet legal advice is worth exactly what you pay for it.

Here are a couple quotes from the California Board of Equalization (BoE) website:

Use tax is generally imposed on the purchaser of tangible personal property that is used, consumed, or stored in this state. Sales of vehicles, vessels, and aircraft by licensed dealers are usually subject to sales tax, for which sales tax reimbursement is collected at the time of purchase. Use tax applies to the cost of vehicles, vessels, and aircraft purchased from non-dealers (for example, private parties) or from outside California for use in this state. Use tax also applies to most leases of tangible personal property. Private party sales or brokered transactions are normally subject to use tax. If the first use of the property occurs in California, use tax may apply even if the purchaser is not a resident of the state.

The Consumer Use Tax Section receives information from various sources. These sources include the Department of Motor Vehicles (DMV) on vehicles, motor homes, and undocumented (CF) vessels and from the Federal Aviation Administration (FAA) on aircraft. Records obtained from the United States Coast Guard (USCG) identify transfers of ownership of documented vessels. California County Assessor's Offices and other states also provide information identifying ownership of vehicles, mobile homes, vessels, and aircraft.

The total value or consideration given to acquire tangible personal property is included in the amount subject to tax. In general, consideration includes cash, assumption of any loan, cancellation of a debt, value of property traded or exchanged, value of services bartered, and any other payment, valued in dollars, given to purchase the property.

For purchases of vehicles, undocumented vessels, and mobile homes, the use tax is due on or before the last day of the month following the month of purchase. Use tax on aircraft and documented vessels is due the last day of the twelfth month following the month of purchase or the last day of the month following the month we mail you a return, whichever period expires first.

When you register a vehicle or undocumented vessel with the Department of Motor Vehicles (DMV), you report and pay the use tax to DMV who is acting as our agent in collecting the tax. (An undocumented vessel is a vessel that is not required to have a marine certificate issued by the U.S. Coast Guard.) The registration constitutes filing a return with the BOE. You do not need to file a separate use tax return with the BOE for purchases of vehicles or undocumented vessels if you complete registration with the DMV. However, if you had purchased a vehicle or undocumented vessel and later sold it without completing registration with DMV, then use tax is due directly to us.

NOW QUOTING THE BoE REGULATIONS

When the vehicle, vessel or aircraft is first functionally used outside of California, the vehicle, vessel or aircraft will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, exclusive of any time of shipment to California or time of storage for shipment to California, unless:
(A) Physically Located Outside California. Use tax will not apply if the vehicle, vessel or aircraft is used, stored, or both used and stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state.

Notwithstanding subdivision (b)(5)(A) above, aircraft or vessels, the purchase and use of which are subject to the 12-month test described in subdivision (b)(5), that are brought into this state exclusively for the purpose of repair, retrofit, or modification shall not be deemed to be acquired for storage, use, or other consumption in this state if the repair, retrofit, or modification is, in the case of a vessel, performed by a repair facility that holds an appropriate permit issued by the Board and is licensed to do business by the city, county, or city and county in which it is located if the city, county, or city and county so requires

The stuff above says you have to be very careful in what you do and how you do it. I'll let you try to figure out what it means.

BoE rewrote many of their regulations in 2013 - 2014 and you need to be careful about receiving out of date advice. Timings and durations changed significantly.
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Old 01-09-2015, 13:11   #28
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Re: Avoiding California tax (legally)

"Buy a boat out of the water, fix it up, LEAVE. While you are fixing it register it out of state,effectively, EXPORTING it."

Great idea except for the fact that dry storage costs on a 30' boat will exceed the use tax on that boat within a few months.

Or - buy a boat in the water and haul it to put in dry storage - you'll exceed the use tax in a month or two.

And, you will still have to pay registration costs in another state.
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Old 02-09-2015, 19:08   #29
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Re: Avoiding California tax (legally)

I bought an airplane in Texas and kept it there a long time. It was used in air charter. I brought it to California to deliver to a purchaser and sold it.I never used it in California. But it was at the airport for a month for inspections, etc. Four years later, California tried to come after me for the use tax from when I bought it in Texas. By then I no longer had the proof to show it was only in California a few weeks and that I had bought it long before. So the tax people put a lien --- not on me, thank goodness, because I never owned the airplane. It was owned by a company set up just to operate the aircraft as a charter. That saved me. I did not care that a huge lien was placed on a corporation that went out of business. Far be it from me to suggest you buy the boat in corporate name and once you leave California for good you transfer it to another entity or yourself.



Why can't things remain where i carelessly left them?
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Old 02-09-2015, 19:18   #30
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Re: Avoiding California tax (legally)

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It is amazing to me that no one in a state that collects taxes thinks twice about paying sales tax on their cars, flat screen tvs, washing machines, etc. but will jump through just about any kind loop hole they can find with a boat.


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Online ordering my friend...I never make a large purchase in California. Out of principal, I purchase out of state tax free...its the only way to starve the beast.
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