US Sales Tax and Mexico

[Colorado Dreamer]

I was wondering if anyone knew if it was true (or even legal) that if you buy a boat in San Diego and take it to Mexico for the first 90 days you do not have to pay sales tax on the vessel.

I am a Colorado Resident, but plan to buy in San Diego as that is where my sailing "support" group is at. We plan to take her south to PV for a few months.

Thanks in advance.

[TaoJones]

A hearty welcome to someone from the state of my birth, and first 27 years.

The sales tax question is an interesting one, to be sure, and it depends on where your yacht "lives" more than where you live. I can assure you that California will take as big a slice out of your bank account as they can.

Also, the "90-Day Yacht Club," (ie, the practice of keeping a California-purchased boat out of California waters for the first 90 days of ownership) is no longer an option. The new restriction is one year. And, like Florida and perhaps some other jurisdictions where yachting is a big industry, you typically have to prove you qualify for the exclusion.

Don't assume because you have jumped through all of the hoops you know about, you're in the clear. The taxing authorities generally take the position that you owe them what they say you owe them, and it's up to you to prove otherwise. For this reason, most people who are purchasing big ticket items like airplanes and high-dollar yachts, use companies that are set up specifically to deal with the Franchise Tax Board (in California) before they buy so that the issue is handled properly before it becomes a legal fight.

Bottom line: it can be finessed, but do it right and don't make any assumptions.

Good luck to you!

TaoJones

[markpj23]

I investigated this "offshore delivery" option in San Diego about 4 years ago. Be prepared to absolutely PROVE that the ownership delivery was made in international waters; prove that you actually USED the boat for 1 year in Mexico - not just berthed her there.

It can be done but is a pain. Even assuming you are successful in doing that, each year the tax man comes around again and charges you a personal property tax if your boat is in CA waters as of January 1st I believe. All marinas are required to provide the state with boat lists, owner names etc.

And for those who think CA is being unreasonable, the good state of TX requires 4 years under the offshore delivery scheme else they collect sales tax.

I strongly suggest that you discuss this with a knowledgeable broker / tax advisor in the state of CA.

[TaoJones]

Originally Posted by markpj23

I strongly suggest that you discuss this with a knowledgeable broker / tax advisor in the state of CA.

I agree, markpj23, except that I would probably advise that a person take most of what a broker tells you with a grain of salt. His primary interest is to close the sale, and if sugar-coating the sales tax issue will accomplish that, that's what you can expect to hear.

The following link is in no way a recommendation, but is provided to show the kind of outfit that does this type of work:

California Board Of Equalization Board Of Equalization State Board Of Equalization Tax Audit California Tax Reductions

There are certainly many others, and a Google search for "sales tax consultants" should bring up several.

TaoJones

[hellosailor]

Colorado, you want to do some homework online. Look up "vessel documentation" for USCG documentation for US recreational vessels, and then look up the motor vehicle registration and sales tax requirements for whatever state you plan to keep the vessel in.

Mexico may let you bring the boat in without US federal documentation, but they won't let you bring it in without at least a state registration, unless you are planning the international venture of bringing it in and registering it in Mexico--which you may not be able to do. And if you did, bringing it back into the US would be another adventure.

The tax men aren't dumb, and when and if they suspect tax evasion is involved, they can and will arrrest the boat and throw heavy penalties on you. Check the laws, which are easily available online, and if you can't be SURE you see a clear way to get off without paying taxes...that's probably because there rarely is one.

[Thermal]

Yes, it can be done, but it is risky. Even though all the laws are there for you to read, when it comes to taxing agencies, you are guilty until proven innocent, and the "judge" is the taxing agenciy itself. The Franchise Tax Board wants money! I bought my boat in Hawaii and has been here ever since, yet since I used to live in Ca., somehow the FTB found out I bought a boat and wanted to collect taxes. I had to prove to them that I bought the boat outside of Ca. and that it has been outside of Ca. ever since. Eventually they went away, but there was a thread a few years ago about a guy living in Idaho that bought a boat in Idaho, kept in Idaho, and had never even been in Ca., yet the FTB hassled him for years simply because when he bought the boat it's home port was listed as San Francisco!
If you go this route, it would be wise to get some help as already mentioned in other posts.

[Pblais]

And for those who think CA is being unreasonable, the good state of TX requires 4 years under the offshore delivery scheme else they collect sales tax.

Guilty until proven innocent with penalties applied from the start. Better to commit a crime than fight with a tax collector. Al Capone learned the hard way too. Do nothing casually in this situation. As noted you can live where you like but your boat gets taxed where it is.

We sort of have a loop hole here in VA. If you run up and offer to pay ASAP it's a cap of $2K else it's 5.5% with no limit plus a penalty. No amount of jumping through hoops is going to cost less than that. DE is still free though.

[Colorado Dreamer]

Wow. Thanks for all the feedback. It looks like I am going to have to sit down with a lawyer or some other form of serious tax expert to figure all this out. I did just watch a program on Montana State LLC's, so that is something to think about as well.

[David_Old_Jersey]

Nothing to add, just being nosey........but is this what folk are saying:-

1. Some States charge a Sales Tax on New Boats.

2. Some States charge a Sales Tax on Second Hand Boats?

3. Some States charge a Wealth Tax ANNUALLY because you have a Boat??


(Rules and Taxes vary between States)

[Pblais]

I did just watch a program on Montana State LLC's, so that is something to think about as well.

We have a thread on that too. I wouldn't do it.


Dave - You are correct. The fun part is with so many states the rules are not all the same though many are similar. Legally each is it's own little country. There are no real US federal taxes on a boat purchase.

[camaraderie]

David...yep!
...and some states will charge you sales tax DIFFERENTIAL on a boat you previously bought and paid tax on in a lower sales tax state. (i.e. old state 5%...new state 7%...you owe 2%)...regardless of the age of the boat!
...and some states do not recognize sales tax paid to another state at all and will charge you again if you mofe it to thier state.

...and you thought VAT was complicated!!?? (G)

[David_Old_Jersey]

Originally Posted by camaraderie

David...yep!
...and some states will charge you sales tax DIFFERENTIAL on a boat you previously bought and paid tax on in a lower sales tax state. (i.e. old state 5%...new state 7%...you owe 2%)...regardless of the age of the boat!
...and some states do not recognize sales tax paid to another state at all and will charge you again if you mofe it to thier state.

...and you thought VAT was complicated!!?? (G)

I would like to thank you for making things clearer .........actually VAT in Jersey is very simple. We do not have it (and the EU / UK govt would never let us into the VAT system, for the very good reason that our rate would be 1%!)........but next year it looks like we are getting GST (Goods and Services Tax) at 3% (initially at 3% ).

With low taxes where does our money come from? Stuff like this makes me proud (genuinely!!) to be a free (business) thinking Jerseyman :-

House of Commons Hansard Debates for 25 Apr 2007 (pt 0011)

(Employing Police Training personnel in Iraq via a Jersey registered company. and then firing them without any comeback or cost - seems to have upset a few UK MP's .....it's all legal and IMO it's their own fault if any Anglos assume we are just a suburb of Milton Keynes)

(BTW we used to be quite big in piracy, "back in the day" .........and I once came up with a legal and workable scheme to get Romanian Babies listed on the London Stock Exchange - ironically outlawing the sale of Babies actually helped the scheme, but my employer did not go for it)

[Charlie]

Colorado dreamer:

I am going thru the test right now. I have purchased a boat that I am planning on sailing thru central America and the canal and then on to Europe. I hired www.aeromarinetaxpros.com/ it casts $3500 but they are really experts on the ins and outs. Here are the basics as I understand it. The boat must be kept out of Kalifornia for 1 year. Proof of it being kept out of the state is imperative. Proof is offered in the following manner: Letters from the doc manager that the boat was at the dock. Receipts for fuel etc. after all the proof is collected a tax return needs to be filed (even if you are not a resident)and with it all the proof is submitted. From there the lovely people at the Franchise Tax Board will review your tax return. If they find that it is correct they will issue a clearance for the vessel. There may be cheaper solutions. You may be able to do it w/o the help of a tax professional but the question is is it worth the risk. The penalties can be deadly. For any boat around $50k to $70 k it is not worth avoiding the tax. For boats over $150k it really starts making sense. If your plan is to keep the boat in California then all bets are off you owe the tax.

[Colorado Dreamer]

Well, my plans are to buy the boat, and then immediately take it to Mexico, then to the canal, and then off to Europe. I don't expect to return to the US for at least a year...

I don't see how I would have to pay California tax if I am not a resident, I do not keep the boat there, the boat will never return there, etc...but it looks like I will need to find a professional tax person to help me here.

The cost of the boat is a little under 100K, so the tax savings would be substantial if I can find a way to legally avoid them.

[Stevens 47]

Here we go again more slurs about brokers.

I agree, markpj23, except that I would probably advise that a person take most of what a broker tells you with a grain of salt. His primary interest is to close the sale, and if sugar-coating the sales tax issue will accomplish that, that's what you can expect to hear.

Most of these comments contain half truths and rumors. I am a broker and I just finished a sale and a offshore delivery for a out of state couple (we do about 10-20 transactions of this type every year in my office). If you are a resident in the State of California you can take delivery of a vessel 3 miles offshore then return to port (San Diego) for 25 hours (this rule was created for vessels transiting and needing to make repairs). Then you must remove the vessel to waters outside of the state of California. If you are resident in another state and plan to purchase in California. You do the same take delivery offshore then you can bring the boat back in to port (San Diego) for up to six months with in the one year cycle. The boat has to be out for six months and you have to document that it is out, the kicker is that you can come and go as long as the boat is out for a total of six months. I am not going to go into the procedure on how to accomplish this here as I might get accused of sugar coating the truth. But if you want to send me a private message I will email you the procedure next time I am in my office.

Jack