Tax Avoidance

[mctdog]

I need feedback on my plan to avoid taxes in the short term on a boat purchase. Have a look and let me know your thoughts:

-I am Canadian and live in Canada in Vancouver BC
- My wife is dual citizen - USA and Canada

- I'd like to purchase a used sailboat in South Carolina and register it there and pay the $300 state sales tax. I should need to pay property tax on the boat becuase I will ship it within a couple weeks of purchase
- Then I'd like to ship the boat to Washington state by road transport
- I'll keep the boat on the hard in Washington for a couple months to do repairs until June 2013
- I'll then put the boat in the water and wait the 59 day waiting period until August 2013 before applying for a 12 month cruising period
- I then plan to leave for an extended cruise down to Mexico and beyond in Aug 2014.
- I won't take the boat in to Canada at all

I think this plan allows me to avoid the taxes in Washington and Canada until we get back from our multi-year trip.

Questions:
- Will this work?
- What are the risks?
- Any benefit to having the boat in my wife's name vs. mine?
- Should I document the boat with the US Coast Guard? Are there any benefits to this for my situation?
- Should I register the boat and flag it in Canada even though I won't be taking it to Canada?

Thank you in advance for your help on this difficult topic.

[jeremiason]

Are you going to Document the vessel or register it with DMV?

With your wife's Dual Citizenship, you could document the boat in the US or Canada. I would highly recommend Documention over a DMV Registration when traveling South of the Border.

Frankly, it doesn't matter where you register or document the boat... Tax is based on where the boat is primarily located. Each state has different requirements, but as rule of thumb, you are usually exempt from Sales Taxes as long as the boat doesn't spend more than 90-181 days in the state...

If you haven't paid sales tax on the vessel, or in some cases, haven't paid enough according to the boat's new State of residence you could be subject to Sales and/or Use Tax.

So you should be exempt from the South Carolina's State Sales Tax, if the boat leaves the State within 90 Days.

The problem arises when you keep the boat in another state for a period of days, depending on their State laws. Then you could be liable to pay sales tax and/or use tax in that state.

On another note.... you are asking advice from a bunch of people you don't know and surely aren't going to be held responsioble for their "free advice"...You should really be consulting a tax advisor to be sure and legally clear.

[boatpoker]

I am a Transport Canada Appointed Tonnage Surveyor so deal with this stuff often. Register the boat in Canada and you will never have to pay taxes until the boat comes to Canada. If you ever do bring the boat to Canada you will also be liable for duty on top of taxes if the boat was built outside of the NAFTA partners.

[westsail374]

Consider buying in NC not SC. No tax on boat sales between individuals in NC.

[sailpower]

Sounds like your potential tax liability is WA state unless you stop and stay somewhere else in the US on the way to Mexico.

Whever you spend time in the US you need to check on what those states Use tax laws are to see whether your length of stay will trigger them..

Is the purchase price of the boat high enough that this is a big concern?

If you register the boat in Canada do you need a cruising permit for US waters?

[sailpower]

Originally Posted by boatpoker

I am a Transport Canada Appointed Tonnage Surveyor so deal with this stuff often. Register the boat in Canada and you will never have to pay taxes until the boat comes to Canada. If you ever do bring the boat to Canada you will also be liable for duty on top of taxes if the boat was built outside of the NAFTA partners.

You mean he will never have to pay Canadian taxes until and if the boat comes to Canada?

State use tax could be triggered in the US depending on his length of stay in any given state.

[boatpoker]

Originally Posted by sailpower

You mean he will never have to pay Canadian taxes until and if the boat comes to Canada?

State use tax could be triggered in the US depending on his length of stay in any given state.

Correct on both counts.

[sck5]

What boatpoker said lines up with the experience of a canadian friend of mine. He bought a boat here in upstate NY but only had to pay tax when he sailed back home. Nothing was due until that point even though he flagged it as a Canadian boat when he bought it.

[S/V Illusion]

From the title, you imply intent to "avoid" taxes which is both illegal and causes a greater burden on the rest of us. If your intent is to only pay that which is legally required, why take tax advice from the Internet? Can you not identify the relevant tax authorities in the states and Canada?

[Doodles]

Originally Posted by S/V Illusion

From the title, you imply intent to "avoid" taxes which is both illegal and causes a greater burden on the rest of us. If your intent is to only pay that which is legally required, why take tax advice from the Internet? Can you not identify the relevant tax authorities in the states and Canada?

This is a question I've often asked. I think its because its cheap.

I also often wonder would you go to an income tax forum looking for boat maintenance advice?

[Vasco]

Originally Posted by S/V Illusion

From the title, you imply intent to "avoid" taxes which is both illegal and causes a greater burden on the rest of us. If your intent is to only pay that which is legally required, why take tax advice from the Internet? Can you not identify the relevant tax authorities in the states and Canada?

Tax avoidance is not illegal. Tax evasion is illegal. Please make sure you know what your'e talking about before you castigate the OP.

[denverd0n]

Originally Posted by Vasco

Tax avoidance is not illegal. Tax evasion is illegal.

Exactly, but just to elaborate...

The term "tax avoidance" refers to structuring your transactions such that they incur the minimum legally required taxes. There is absolutely nothing illegal or immoral about this.

"Tax evasion" is the term that is used when you don't pay the taxes that you legally owe. This, obviously, is illegal.

The OP clearly has no intention of evading taxes. He only wants to reduce his tax bill as much as he legally can.

[foggysail]

Here in Massachusetts, you are responsible for the state excise tax AND a water use tax where the water use tax is imposed by the local communities if your boat is moored/docked on 1 July or if you have already paid those taxes to a neighboring community. Incidentally the so called excise tax is deemed to be for water use..... tell that to the local communities.

It matters not that you have your boat registered out of state, they get you with a water use fee.

Some years ago the so called trick was to form a Delaware corporation to avoid the state's sales tax. Did not take Massachusetts long to catch up with this fraud. They sent out inspectors in jack boots with badges and guns to board any boat who displayed an out of state location under the boat name, especially Delaware.

I fell for that Delaware scheme when I first purchased my sailboat years ago. It took me a year or so to realize it was not going to work as advertised and paid my sales tax. Fifteen years later, the State's tax department send a letter to me wanting proof I had paid my sales tax. I told them to send a stamped, self address letter to me and I would forward as many copies of proof as they demanded. Sure enough, about year later, they sent me their self addressed, stamped letter and I forwarded a copy of my paid tax receipt.

Locally, Rhode Island stopped sales tax on boats.

Foggy

[MarkSF]

As a foreign citizen, you cannot document a boat with the US Coast Guard. Your wife could.

[hellosailor]

Illusion, even our IRS will tell you that tax avoidance is perfectly legal and even encouraged. It is tax evasion that is illegal, there's a difference.

dog, you're all confused and you really need to go look at the SC, WA and your own provinical web sites. If you're buying a boat in most of the US states, there's no "property tax" involved. There's sales tax in most of them, and that is waived if you are not a resident, the boat is moving out of state promptly, and it is not registered in state.

So there should be no SC taxes involved, unless they are one of those states that require brokered sales to collect sales tax in almost all cases, later refunding or crediting it if you are exempted. They'll have the rules posted on an official tax web site, or motor vehicle sales/registration web site. Or your broker can tell you, if you're using one. If there's no broker--just don't register it in SC!

When you get to WA state, you need to check their web sites. In most states you don't need to register a boat that is on the hard, or you don't need to register it until after a set time period. Again, no registration, no sale, no tax.

Assuming you can get a cruising permit for the US without first removing your boat from US waters for 15 days (I'm told you can for boats that are not yet in the water, I don't know but there's another federal web site to cover that)...you either flag it US, in the wife's name, or Canadian. And then just deal with Canadian taxes.

Esaiest way to get unconfused, is to go visit the web sites, get it from the sources. Most also answer phone calls--but the written statutes are binding, the telephone advice is not.