So basically a longish
bareboat charter arrangement with all the
legal, liability insurance, maintenance,
certification of competency, sales / use tax, and property and
income taxation reporting, etc. matters.
And the boat owner may need to obtain a chartering
license to fulfill their contractual obligations and requirements.
This is a straight business relationship, not a borrowing of a boat situation.
Don't perceive it anything other than what it is.
https://dor.wa.gov/education/industry-guides/vessel-brokers-and-dealers/charters
Department of Revenue State of
Washington
Bare boat charter
A bare boat charter is
renting or leasing a vessel to a customer, who then has total control of the vessel. The boat owner or the charter business cannot provide a
captain or crew or be present on the vessel during the charter.
Vessel owners can place some general restrictions on vessel operation, such as requiring the lessee to hire a licensed
skipper, limiting the number of passengers on board, and limiting where the vessel can be operated. To avoid tax liability for intervening use, the boat owner cannot be on board as a
skipper, crew
member, or guest.
Reference: WAC 458-20-211
Tax on boats purchased for bare boat charter
Vessels purchased solely for bare boat charters are purchases for resale and are exempt from sales tax. Sellers must retain a reseller
permit in their records documenting the exempt
sale.
The purchaser will be subject to use tax (based on the total value of the boat) if they engage in intervening use of the boat. If the boat owner is on board as a skipper, crew member, or guest, it is considered intervening use. Charter boat owners or charter businesses are not treated as vessel dealers. Intervening use of a charter boat is taxed on the full value, not the rental value.
Intervening use doesn't include activities in support of a bare boat charter business such as maintenance, fueling or
delivery activities. Such activities won’t trigger use tax liability. This is consistent with "dealer use."
Purchaser requirements
Purchasers of documented vessels for bare boat charter are generally required to complete and file a
Commercial Vessel Tax Personal Property Listing Application with the Department of Revenue. This requires that the business that owns the vessel is registered with the Department of Revenue. Apply for a business
license online.
Bare boat charter tax reporting
The following scenarios represent the two most common business methods and how the activities are reported.
1. Company A leases boats from the boat owners and sub-leases them to the public.
Company A collects sales tax on bare boat charter fees and reports their gross receipts under the retailing B&O tax classification. The vessel owners report wholesaling B&O tax on gross
income from the lease to Company A.
In this scenario, the owner may lease back the vessel from Company A and pay sales tax on the fair market rental rate.
2. Company B is an agent (but not lessee) for the vessel owner and provides charter management services.
Company B collects sales tax on the bare boat charter fees and reports its commission earned under the
service and other activities B&O tax classification. The charter fees are reported as follows:
Owners using a charter agent that charters in the name of the boat owner must report under retailing B&O tax and retail sales tax. If the charter agent remits the sales tax to the Department, the owner may take a deduction from retail sales tax. On the deduction detail pages, identify the deduction as “sales tax reported by agent.” See WAC 458-20-159.
Owners using a charter agent that charters in the name of the charter agent report under wholesaling B&O tax. In this situation the boat owner must obtain a reseller
permit from the charter agent. See WAC 458-20-102.
The owner reports their gross receipts, without any deduction for amounts paid to or withheld by Company B as compensation for their services. Here it is assumed that Company B will remit the sales tax collected directly to the Department of Revenue with its excise tax returns.
When Company B acts as an agent for a vessel owner, the owner cannot use the vessel without incurring a use tax liability on the fair rental value base on the full value of the vessel. The only way that a boat owner can use the boat for personal pleasure and not owe sales or use tax based on the value of the boat is, before any pleasure use by owner has occurred, to lease the boat to a third party on a long term lease, then lease back the boat for shorter periods of time. In this case the owner pays sales tax based on fair rental value for the period of personal use. See WAC 458-20-211.
Additionally, the owner may not allow employees of the owner to use the vessel for their pleasure at no charge, or for a charge below fair market value. This will be considered intervening use by the owner.
References: WAC 458-20-159, WAC 458-20-178 and WAC 458-20-211 and Taxability of the Charter Boat Industry Special Notice