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Will the ‘90-day Yacht Club’ Tax Exemption Rules Ever Return?

Posted: October 2, 2008  |  By: David Weil, Esq.

I have heard that the law for the 90-day offshore delivery sales tax exemption has changed again, and that the exemption now requires the boat to remain outside of California for one year. What is the status of the law? When is it effective? Will it change back to 90 days again at some time in the future?
Gov. Arnold Schwarzenegger signed the 2008 California Budget into law Sept. 23, almost three months after the legally mandated deadline for enacting the state’s annual budget. This year’s exercise in democracy included the closing of various so-called “tax loopholes,” but the item of particular importance to the yachting community was the return of the “one-year rule” relating to the assessment of sales and use tax on the purchase of vehicles, vessels and aircraft. The legislative “trailer bill” which included this provision had not been signed at the time this column was submitted, but we have every reason to believe it will be enacted and effective when this issue of The Log reaches the newsstand.

Most of our readers are generally acquainted with this political football. In this column we will offer a review of how sales and use taxes are assessed for boats in California, and how the change in the law works.

The state of California will assess sales tax (for new vessels) or use tax (for used vessels) if the boat was (1) purchased in California; or (2) purchased for “use” in California. California’s territorial boundary extends 3 miles into the ocean, so if the purchase can be structured to close more than 3 miles offshore (an “offshore delivery”), the buyer will satisfy the first prong of the test. The second prong involves a subjective analysis of the buyer’s intended use at the time of the purchase, which is a little more complicated.

A buyer’s true “intent” is impossible to determine through any objective test, so a “presumptive test” was established, where a buyer who could prove that the boat was used outside of California for a particular time period after the purchase was presumed to have purchased it for use outside of California.  For many years, the required time period was 90 days.  Under that test, a buyer who could prove that he or she used the boat outside of California for more than 90 days during their first six months of ownership was “presumed” to have purchased the boat for use outside of California.

Over the years, it became very common — almost expected — that the buyer of a boat in Southern California that cost more than $100,000 would take advantage of this procedure and spend three months in Ensenada, Mexico (or elsewhere outside the U.S.) after the purchase. As this procedure became more publicized, California taxpayers took exception to the use of Ensenada as a “90-day yacht club.” In 2004, the state legislature enacted Senate Bill 1100 as a part of that year’s state budget.

SB 1100 increased the 90-day out-of-state period to one year, though it did offer several strategies for reducing that time period. The bill also included a “sunset provision,” and when the law expired in 2007, the 90-day rule was reinstated. But in 2008, the budget negotiations took immediate aim at this perceived loophole, and we have now officially returned to the one-year rule.

We should note that this waffling back and forth on the time period has no effect on the basic structure of the law. The state will continue to assess sales or use tax if the boat is purchased (1) in California or (2) for “use” in California. The varying factor is the presumptive test for evaluating the buyer’s intended use at the time of purchase.

We should also note that this is not a black and white test, and the “presumption” can be defeated.  It was -- and is -- possible for a buyer to comply with the calendar test and nonetheless be subject to the tax, if the California Board of Equalization discovers facts that indicate that the buyer actually intended to use the boat in California.

This year’s approach to the one-year requirement differs from the 2004 approach in two ways.  First, the new law has no “sunset” provision, and the new rules are therefore theoretically “permanent.” Second, unlike the approach used in 2004, which provided a two-month phase-in period before the law became effective, this year’s modification to the law is effective immediately.  In other words, if you are reading this and you have not signed a purchase contract, you will be subject to the one-year rule.

The highlights of the one-year rule provide that a buyer will be presumed to have purchased the boat in California, and thus be subject to assessment of sales or use tax, if:

• The buyer is a California resident and brings the boat into California within one year of purchase;

• The buyer is a nonresident and keeps the boat in California for more than six months during the first year after the purchase;

• The vessel is subject to the assessment of personal property tax at the county level (regardless of whether the buyer is a resident or a nonresident) during the first year after purchase.

The one significant exception to the one-year timetable allows an owner to keep the boat in California during a repair, retrofit or modification project without affecting the one-year analysis, as long as the boat logs less than 25 hours under way while it is in California.

Finally, we will note that a reader who is concerned about the assessment of sales or use tax should contact an attorney who is familiar with these issues. This is particularly true with a legal issue such as this one, which is so volatile and subject to intense political scrutiny.
David Weil is licensed to practice law in the state of California and, as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.
David Weil is the managing attorney at Weil & Associates ( in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, is a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. He is also one of a small group of attorneys to be certified as an Admiralty and Maritime Law Specialist by the State Bar of California. If you have a maritime law question for Weil, he can be contacted at (562) 438-8149 or at

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