Sales taxes & Ownership

[Hippocampus]

We spend NO time in our home state except underway. ONLY time we stop is to briefly to wait on the Cape Cod canal. Previously spent years out of the country and now go from state to state. Still forced to have a state for documentation. That’s annoying but of more impact insurance annually asks for a state of “principle mooring “ and this is reflected in premium cost. Reality is we’ve have had years where we haven’t had a long term slip so just picked where we spent the most time.
When on the boat we don’t refuel, buy stores, go to restaurants nor service the boat in our home state. We moor in other states. Even when not cruising we move with the seasons to avoid use taxes. We avoid Florida as for other reasons the tax structure there is onerous and you need to add in insurance jumps.
Just wish the pols in all states did a true analysis of how much income is gained and lost by their tax structure. Think it’s not a logical system.

Thanks that bitching was restorative. End of rant.

 

[slowgoesit]

Let’s see, a California resident bought a boat in Florida, Registered it in Hawaii, moved it between FL and GA all to avoid paying sales tax. Just because some one got away with it does not make it legal. In fact, it is tax evasion not tax avoidance with the state of FL. True, you don’t owe CA or HI any sales tax.

tiltrider, Unless I missed something, Cold Duck never stated he "Registered his boat in Hawaii", he stated:

"This is what I did. Bought in Florida. Boat was Documented in Fl. I changed Documented port to Hawaii (any port would do). When I move the boat to Hawaii, taxes will be required"

The devil is in the details. Big difference between Home Porting it in Hawaii through the Federal Documentation system, and REGISTERING it in Hawaii as Cold Duck stated. Ours is home ported in Hawaii as well, but it will never be there, that was just where we had our last boat.

 

[mvweebles]

I agree with what Discover Bay is saying. Tax evasion is when you aren't paying taxes that are due, or that have "triggered". Tax avoidance is avoiding ever having taxes trigger, so none ever become due according to the applicable laws.

We operated our previous boat in a similar manner. It was Documented, with home port in Mass where we were residents. The boat had no other more compelling homeport, no permanent or long term moorage, and no identifiable place of primary use, so our place of residency was the most compelling choice. Our tender was also Mass registered. Mass accepts Documentation in lieu of state registration, so no additional registration required on the main boat. Mass taxes trigger when you bring the boat into Mass "for use in Mass". That boat never entered Mass, so mass taxes were never triggered.

The boat was purchased off shore from CA, and paperwork filed with CA stating the boat would be removed from CA within a certain time period. We removed the boat from CA as required, so no CA taxes were triggered.

We then cruised for a number of years in and out of WA, AK, BC, CA, MX, always following the visitor rules for each location, and never triggering taxes in any of those locations.

With our current boat, we followed a similar procedure for the first 2 years, but last year decided to pay the WA tax rather than have to keep moving the boat around to avoid triggering taxes, vs moving around as we pleased. It has simplified our cruising and ownership logistics, but was an expensive pill to swallow.

General questions for you TT. How was your vessel valued by State of Washington for sales tax purposes being a then 2-year old boat?

Second question for you: do you happen to know the rules about avoiding California Sales Tax? Used to be as long as you exited the state within 90-days you didn't owe tax which led to folks like me making a decent living delivering boats to Oregon and Mexico (Ensenada was known as the "90-day Yacht Club"). I know it's changed but not sure how. I realize you took delivery in PNW, but many Nordhavn owners take delivery in California so I thought you might know.

Peter

 

[lwarden]

General questions for you TT. How was your vessel valued by State of Washington for sales tax purposes being a then 2-year old boat?

Second question for you: do you happen to know the rules about avoiding California Sales Tax? Used to be as long as you exited the state within 90-days you didn't owe tax which led to folks like me making a decent living delivering boats to Oregon and Mexico (Ensenada was known as the "90-day Yacht Club"). I know it's changed but not sure how. I realize you took delivery in PNW, but many Nordhavn owners take delivery in California so I thought you might know.

Peter

Peter, CA requires a boat "purchased for use outside the state" to be kept out of CA for a period of 1 year. My understanding is Gov Arnold is responsible for that one. Coral Marina did a good business as the 90 day yacht club during those days, and I had a few friends do that route.

Our current boat was purchased in WA and we used it up there for a year before bringing it down. WA has a nice program for this purpose which they call a cruising permit. The cost is $500 and it lasts for one year, after the year is up you must leave WA and not return for 2 years. This worked out very well for us as we got to see some of the PNW, an area we plan to eventually relocate to. The tax savings paid nearly the entire bill for trucking the boat down.

 

[twistedtree]

General questions for you TT. How was your vessel valued by State of Washington for sales tax purposes being a then 2-year old boat?

Second question for you: do you happen to know the rules about avoiding California Sales Tax? Used to be as long as you exited the state within 90-days you didn't owe tax which led to folks like me making a decent living delivering boats to Oregon and Mexico (Ensenada was known as the "90-day Yacht Club"). I know it's changed but not sure how. I realize you took delivery in PNW, but many Nordhavn owners take delivery in California so I thought you might know.

Peter

WA uses something called the BUC Book which is a boating equivalent to NADA for valuing boats. But many cruising boats are not included, including mine. They will then go to the last price paid for the boat, which would have been the new boat purchase, but as you point out, the boat was then 2 years old. To argue a boat value, you need to appear in person at a DOR office, so I did that.

In prep, I worked with PAE and one of their brokers to value the boat, taking into account the loss in value as soon as you "drive off the lot", plus the impact of various build and layout decisions that we made that other buyers might not agree with, thereby making the value lower. All of this was backed by boat sales data supporting each point. I took that to the DOR, they accepted it, and I wrote them a check. It was painful, but less painful than if based on the original purchase price.

As for CA, it was 10 years ago so my memory is a bit vague. The transaction was off shore, with GPS location, date, time memorialized along with a photo showing the day's LA Times. But there was also a CA form to fill out. I don't recall if it actually got filed with CA, or if the seller holds it as documentation of the transaction, and why they didn't collect sales tax. And you are correct, I then had some number of days before I needed to leave CA, but I wasn't paying much attention to how many days because we left almost immediately. It was the end of September and weather for the run to Seattle was getting worse and worse, so we wanted to go as soon as there was a window.

 

[sunchaser]

In 2006 we bought our boat from the importing broker in Seattle. In stayed in WA for about a month while documentation papers were processed. At the time we lived in Utah which was then the official hailing port. We then moved the vessel to BC thus not subject to WA taxes of any sort.

By virtue of a Canadian pleasure boating government program available for our documented vessel we paid no Canadian taxes either. Certain protocols were to be followed to allow the program to be valid.

 

[Larry M]

We bought Hobo in Alaska, at the time, State registration was not required since she was documented in AK and there was no state sales tax.

We arrived in Florida 7 years later. When we went to registered Hobo, we submitted our vessel doc showing Sitka as our home port and copies of our non Florida drivers licenses. No sales tax was due since we had satisfied the taxing jurisdiction on where she came from, we were out of Florida for more than ? days and we were non-residents.

We were fulling expecting to pay sales tax but what a gift.

 

[Sababa]

We own our current vessel through a tax-paid LLC that was established by the previous owner and paid no Washington sales tax when we bought the LLC that owns the boat. The purchaser of our previous vessel acquired it through an LLC that he set up for that purpose. The LLC paid the sales tax to acquire the vessel, but it will not need to be paid again when he sells the LLC to the next owner, and he will potentially get a better price as a result. I understand his LLC cost about $10k to set up over and above the sales tax, and it cost us about the same to transfer the ownership of our LLC, so you have to take a long view of things and have a boat over a certain value for it to make sense.

 

[DDW]

The rules in CA are, you must take delivery out of the state, and must be able to prove that the boat was out of state for 12 months following purchase (6 months if a non-resident). You then must apply for the exemption. I've done it twice, in the second instance they phoned the yard where the boat was unloaded from the truck, and the marina where it was first kept to verify what I had provided them in written documentation - so they don't just take your word for it.

Long ago it was a 90 day period out of the state, then 1 year, then it went to 180 days, now it is back to a year. It is summarized pretty well here. When I last did it it was 180 days (and still is for a non-resident).

 

[Seevee]

We own our current vessel through a tax-paid LLC that was established by the previous owner and paid no Washington sales tax when we bought the LLC that owns the boat. The purchaser of our previous vessel acquired it through an LLC that he set up for that purpose. The LLC paid the sales tax to acquire the vessel, but it will not need to be paid again when he sells the LLC to the next owner, and he will potentially get a better price as a result. I understand his LLC cost about $10k to set up over and above the sales tax, and it cost us about the same to transfer the ownership of our LLC, so you have to take a long view of things and have a boat over a certain value for it to make sense.

Perfectly legal as far as I can see. Big corps do this all the time. Do you think they re-register all the cars and truck in the acquired company and pay sales tax? Nope.


"I understand his LLC cost about $10k"


Not ever close and depends. An LLC in Fl costs about $100 and $100 annually.



You can do the same thing with a trust. Cost of a trust (if you know what you're doing) $0, Annual fees $0. Situs of a trust, unless clearly spelled out in the trust document there is NO situs, no recording of any of the trust documents.... anywhere.



And as far as I know, there is no liability of the beneficiary. And no liability of the Trustee (state statues in FL, if challenged there.... IF they can find it).


However, the "ownership" of the vehicle in a trust, IS recorded in the court house records, or the DMV, and that's the trustee.

 

[Sababa]

Not ever close and depends. An LLC in Fl costs about $100 and $100 annually.

That’s what the state charges to register the LLC. But unless you want to and know how to do it yourself, having a lawyer draw up the LLC agreement, execute the purchase and documentation of the vessel in the name of the company, serve as the escrow agent, and handle all the ancillary paperwork that goes with it, the soup to nuts transaction costs of setting up an LLC and buying a boat with cost $$.

 

[SteveK]

That’s what the state charges to register the LLC. But unless you want to and know how to do it yourself, having a lawyer draw up the LLC agreement, execute the purchase and documentation of the vessel in the name of the company, serve as the escrow agent, and handle all the ancillary paperwork that goes with it, the soup to nuts transaction costs of setting up an LLC and buying a boat with cost $$.

LLC, sounds facinating. Is that Limited liability Corporation.
So is the legal fee setup deductible from your regular income and if you sell the LLC (which owns the boat) for less than the cost to purchase, is that another deduction?

This on top of 2nd home tax deductibles.

 

[Sababa]

Depends on how you operate the LLC. If it’s just a passive holding company that owns your boat for you, there are no tax benefits. (You don’t even need to file a return my lawyer tells me.) If you actually run the LLC as a for profit business (chartering for example) in addition to using it yourself I understand it’s different, but you’d better get professional help.

 

[Seevee]

That’s what the state charges to register the LLC. But unless you want to and know how to do it yourself, having a lawyer draw up the LLC agreement, execute the purchase and documentation of the vessel in the name of the company, serve as the escrow agent, and handle all the ancillary paperwork that goes with it, the soup to nuts transaction costs of setting up an LLC and buying a boat with cost $$.

In Florida this is dirt simple and you can go online on the website https://dos.fl.gov/sunbiz/ and it guides you through, easy and talk to you through it, and you screw up you can correct it.


But if you what to spend $thousands on attorneys, have at it.

 

[Sababa]

From the web site:

These instructions are for the formation of a Florida Limited Liability Company pursuant to s.605.0201, F.S., and cover the minimum requirements for filing Articles of Organization.
Your Articles of Organization may need to include additional items that specifically apply to your situation. The Division of Corporations strongly recommends that legal counsel reviews all documents prior to submission.
The Division of Corporations is a administrative filing agency. We cannot provide any legal, accounting, or tax advice.

Dirt simple indeed. Hire a lawyer.

 

[Seevee]

From the web site:



Dirt simple indeed. Hire a lawyer.

I could argue that if you get an LLC (or trust for that matter) for boat ownership, your money spent to learn about is and know how to do it yourself is better spent than hiring a lawyer.


Now, you wanna run a business, could make more sense with the lawyer.

 

[denverd0n]

...we were out of Florida for more than ? days and we were non-residents. We were fulling expecting to pay sales tax but what a gift.

If you own and use your boat outside of Florida for more than 6 months then you owe no sales/use tax to Florida when you bring it here. That is true regardless of what taxes you may, or may not, have paid when you bought it.

Only caveat is that the 6 months must have been spent in a state or territory of the United States. Time spent outside of the U.S. does not count towards your 6 months.

 

[Hippocampus]

In MA to not be considered a dodge you must show a profit 3 of 7 years last time I looked. Not a lawyer but believe trusts, LLCs, and PCs set up just to limit taxes aren’t considered an adequate veil in MA . You need to demonstrate another justifiable reason. Our boat isn’t in MA but is in a trust (as is our house). Justify this for estate planning purposes if challenged will say we’re in a second marriage so wanted clarity. Suggest you run any planning by a financial advisor, accountant and estate lawyer before acting. There are both liability exposures, ownership transfers and tax implications to think about. Thinking only about tax exposure isn’t the whole picture.

 

[Seevee]

If you own and use your boat outside of Florida for more than 6 months then you owe no sales/use tax to Florida when you bring it here. That is true regardless of what taxes you may, or may not, have paid when you bought it.

Only caveat is that the 6 months must have been spent in a state or territory of the United States. Time spent outside of the U.S. does not count towards your 6 months.

Denver,
Hi Neighbor,
How did you do that. Last time I checked that didn’t work. Brough boats, cars, etc from WI and when registered, had to pay the current sales tax, less any tax I paid in WI.

 

[Seevee]

In MA to not be considered a dodge you must show a profit 3 of 7 years last time I looked. Not a lawyer but believe trusts, LLCs, and PCs set up just to limit taxes aren’t considered an adequate veil in MA . You need to demonstrate another justifiable reason. Our boat isn’t in MA but is in a trust (as is our house). Justify this for estate planning purposes if challenged will say we’re in a second marriage so wanted clarity. Suggest you run any planning by a financial advisor, accountant and estate lawyer before acting. There are both liability exposures, ownership transfers and tax implications to think about. Thinking only about tax exposure isn’t the whole picture.

Hippo,
There are no tax breaks for trusts, LLCs or Sub S Corps. All taxed at the owner/members tax rate. (IRS). Now you may be able to limit local taxes by having the tax date changed but not much.
True, Trusts are great for estate purposes.. and anonymity. Just don’t be the trustee of your trusts.

 

[Cold Duck]

Different states have different tax requirements. For example, Hawaii has no "Use" tax or personal property tax but does have Sales tax. California has both sales and use plus personal property taxes. So, if you buy a used car (or boat) in California, but don't register it in California (totally legal), you can ship to Hawaii and pay no tax other than registration. Same if you buy a used boat or car in Hawaii, no use or sales tax is required, only if it is new. Where if you buy and register in California there is a Use tax and personal property tax on used cars, boats, planes etc. You really have to understand the taxing laws of the state or states you are dealing with. Obviously, the previous posts point this out. LLCs do, or can, have issues when traveling to other countries, at least I have seen in aircraft. This has to do with proving the captain has authority to take the boat out of the US. It's just more paperwork but you have to check to make sure you can prove you have the authority. I am assuming that this transfers over to boats but again depends on the country and its laws. I don't think an LLC in California is going to help you in your tax debt to California, but it may in other states. There are so many tax avoidance issues with the Feds and different state, you really have to be up on them. At one time you could buy a railroad car and get all kinds of tax write offs but that is defunct now. As soon as the govt kills one tax write off, another one appears. Many times they follow the "Law of unforseen consequences" LOL!

 

[Seevee]

Different states have different tax requirements. For example, Hawaii has no "Use" tax or personal property tax but does have Sales tax. California has both sales and use plus personal property taxes. So, if you buy a used car (or boat) in California, but don't register it in California (totally legal), you can ship to Hawaii and pay no tax other than registration. Same if you buy a used boat or car in Hawaii, no use or sales tax is required, only if it is new. Where if you buy and register in California there is a Use tax and personal property tax on used cars, boats, planes etc. You really have to understand the taxing laws of the state or states you are dealing with. Obviously, the previous posts point this out. LLCs do, or can, have issues when traveling to other countries, at least I have seen in aircraft. This has to do with proving the captain has authority to take the boat out of the US. It's just more paperwork but you have to check to make sure you can prove you have the authority. I am assuming that this transfers over to boats but again depends on the country and its laws. I don't think an LLC in California is going to help you in your tax debt to California, but it may in other states. There are so many tax avoidance issues with the Feds and different state, you really have to be up on them. At one time you could buy a railroad car and get all kinds of tax write offs but that is defunct now. As soon as the govt kills one tax write off, another one appears. Many times they follow the "Law of unforseen consequences" LOL!

Cold Duck, What issues have you had with flying an aircraft out of the country (US), owned by a trust?

Every plane I’ve owned is in a trust, and no issues, but only flown to Canada, Mexico (never again) and the Bahamas. Biggest issue was always with US customs on the return.

Boat, no issues.

 

[Cold Duck]

Cold Duck, What issues have you had with flying an aircraft out of the country (US), owned by a trust?

.

I have never flown a trust owned, LLC owned or rental aircraft (or boat for that matter) outside the US so I have no personal experience with this issue. I read numerous aircraft association magazines monthly and over the years the issue has been discussed and updated. It all revolves around proving you have authority to fly the plane in another country if you are not the owner of record on the registration. I have always been the Owner of Record on the Registration so there has never been a problem. I just assume this also applies to vessels. I am not sure about the trust, who has authority to authorize a trip, but an LLC has to have an officer of the corp (even if that is you) approve the flight which requires paperwork proving who the officer is, his authority etc and usually had to be notarized. Now this process as I understood it is years old. Haven't flown outta the country for about 20 years so things could have changed. If I was really going to do it, I would contact AOPA for the latest requirements. I have flown similar to you, Canada, Bahamas and Mexico. Use to fly regularly, 4-5 trips a year to Mexico but agree no more. It's just got too complicated and with Mexico, the rules change faster than you can keep up LOL! When I was young I cud put up with it but becoming an "old grumpy guy", I just don't want to put up with that ...... stuff anymore LOL! Just got notice this month of a new Import permit in Mexico that allows mulit entry for 6 months, for a price of course.

 

[psneeld]

Don't corporate pilots and captains that are not owners routinely show up in other countries routinely? ....and I would expect the vast majority are....

What do most of them have? A letter from the owner/trustee of the corporation or trust? Can't be very complicated as destinations change at the drop of a hat or diversions due to emergencies or weather.

 

[Seevee]

Don't corporate pilots and captains that are not owners routinely show up in other countries routinely? ....and I would expect the vast majority are....

What do most of them have? A letter from the owner/trustee of the corporation or trust? Can't be very complicated as destinations change at the drop of a hat or diversions due to emergencies or weather.

Good question. When I flew corporate we never left the country. When I flew for an airline, it never came up and I certainly did not own it. Privately, never was I asked, but I could have signed permission for me as beneficiary on the spot.

 

[delirious duo]

Wow never knew boating was so boring rich white people are funny as hell.

 

[OCEANA]

A lot should depend on where the boat is principally moored. You will have Virginia registration with decals. If you keep the boat in another state, some tax collectors walk the docks and see where a boat is registered vs length of stay. A good friend did a Delaware registration and kept his boat in Massachusetts. The boat was impounded in his second year of ownership.

In Massachusetts you must own a vessel for 6 months in another state before you can bring it to MA with no sales tax. Maybe he did not do that? I am surprised they would just impound the boat and not give him a chance to pay the tax and/or registration? John Kerry did that 15 years ago and sheepishly paid when he got caught. Big bill on a $7m boat.


I was not aware VA had such a generous exemption. NH and RI are good choices. NB, if you buy and boat with no sales tax and at any time, even years later, take it to FL they may stop you to demand to see your boat registration AND your sales tax receipts. You may have to prove you have a legit exemption. Make certain your ship is in order....

 

[Cold Duck]

Don't corporate pilots and captains that are not owners routinely show up in other countries routinely? ....and I would expect the vast majority are....

What do most of them have? A letter from the owner/trustee of the corporation or trust?

This is a different world. They have agents that handle all their entry paperwork. Not the same as you or I taking our Cessna or Bonanza into Mexico. Of course United or American pilots don't have to prove they have authorization to fly into a foreign country. Same for corporate or Charter aircraft whose agents do the paperwork.

 

[Cold Duck]

Wow never knew boating was so boring rich white people are funny as hell.

Who said I was white!!! Also who said I was rich??? Everyone thinks if you own a yacht you are rich and we all know that aint true. My plane costs less than a new Tesla so jumping to conclusions can be a big mistake. Ok, I confess, I might be a little white LOL!

 

[delirious duo]

Who said I was white!!! Also who said I was rich??? Everyone thinks if you own a yacht you are rich and we all know that aint true. My plane costs less than a new Tesla so jumping to conclusions can be a big mistake. Ok, I confess, I might be a little white LOL!

I jest I’m in the same page in the catalog lol. No I just imagine this is the kind of rampant idea the average tax payer conceives when people talk about a “yacht” most of the trawlers don’t fit the oligarch profile, I’m sure my old fales does I’m closing in on. Ha and I confess I’m not at work and have partied most of the west coast of the Americas and 40 countries not because I’m broke lol