Some states have or are considering a cap on sales/use tax. Should California do the same?
STATEWIDE — Paying taxes is one of life’s two guarantees. If you are a boater here in California then you are paying taxes property taxes on your vessel as well as sales and use tariffs on transfers of ownership.
The way your boat is assessed is determined by something called “situs.”
Situs was among the many topics discussed during a recent meeting of boat brokers and boating interests in San Diego. The forum primarily focused on how taxes affect the way consumers buy or repair vessels in California’s southernmost metropolis.
Local attorney Cris Wenther led a discussion informing boat brokers and boating interests of how tax assessments work in the San Diego area. A portion of his talk pondered whether Southern California could sustain itself as a boating destination despite potentially favorable tax situations in states like Florida, Rhode Island, Virginia and Washington.
Situs and Property Taxes
Situs, which is Latin for “position” or “site,” will determine which government has property tax jurisdiction over your boat or vessel.
Wenthur recently spoke about situs and tax assessments at a boat broker’s forum.
He said a county could collect a property tax assessment on a vessel regardless of its location on Jan. 1. Taxes are collected in arrears, meaning a tax bill for Jan. 1, 2016 covers the 12-month period between July 1, 2016 and June 30, 2017.
What happens if a boat is sold on Jan. 1? Wenthur says the seller would still be on the hook for tax assessments of the upcoming fiscal year.
Attorney David Weil, who regularly submits a legal column for The Log, explained property taxes are assessed at the county level. Situs only applies to annual property tax assessments and has no bearing on assessments of sales or use taxes.
“Property tax assessments are very objective,” said Weil. “Did your boat have a ‘situs’ within the county on January 1st of the year in question? If so, tax is owed. Period. Intent has no bearing whatsoever, and neither does time spent within the state for repairs or other work.”
Intent and time spent in the state for repairs or other work, however, does have relevance when it comes to sales or use tax assessment.
“To some extent situs may be determined by the location of the boat on January 1st. But if it were that simple everyone would leave town on December 31 and return on January 2. So ‘situs’ is more accurately determined by what I call the boat’s ‘home base,’” said Weil. “Is there a marina slip agreement in place for the boat? Is there a slip in front of a private home where the boat may usually be found? This is situs.”
Dean West, a boat broker in San Diego since 1980, said California is a tax risk for yachters.
A major concern in San Diego: out-of-state boat owners bringing their vessels to local boatyards for expensive refits. San Diego’s assessor’s office will still hit the owner with a property tax despite the vessel being out of the water for extensive work or repairs. Out-of-state owners, West said, are being taxed for services they are not taking advantage of, such as schools or roads or fire or trash.
Property Taxes in California
The San Diego County Assessor’s webpage states, “If it flies or floats, it’s assessed for property taxes.”
A vessel is assessed, for property tax purposes, based upon what county it is located and regardless of where it is registered
Property tax on your vessel is determined by an annual review of the sales of comparable boats. The cost of construction will be factored into your assessment if you built your vessel on your own dime.
You will be responsible for property taxes if your boat is for sale and it is consigned to a broker. “Only boats and airplanes owned and held in inventory for sale by a licensed dealer are exempt from property taxes,” the San Diego County Assessor’s office stated on its website.
These rules and practices are observed in all California counties.
Just about anything considered a vessel could be assesses as a property tax in Los Angeles County, including jet skis, yachts and cruise ships.
Los Angeles County officials stated about 65,000 boats are assessed each year on the lien date (Jan. 1).
The Los Angeles County Assessor also stated a property tax can also be assessed on private use of public property or if you lease or rent a boat slip, mooring or tie down. Using property owned by a government agency is not exempt from a property tax assessment.
The tax assessor in Orange County determines a boater’s situs based upon documentation and registration information provided by the Department of Motor Vehicles (DMV), U.S. Coast Guard and marina operators. County officials also perform annual on-site inspections at all marinas and mooring areas between Dana Point and Huntington Beach.
Boaters in Orange County will received a “Vessel Property Statement” for any boats valued at $100,000 or more.
Refer to your tax preparer or marina representative for details on how tax assessments directly affect you and your boat.
If you are in San Diego and have specific questions feel free to contact the Marine and Aviation section of the Assessor’s office at 858-505-6200.
Questions for Los Angeles County boaters can be directed to the Marine and General Aircraft division, 213-974-3119.
Orange County boaters can call 714-834-2772.
Boaters farther up the coast can call 805-654-2193 (Ventura County) or 805-568-2550 (Santa Barbara County).
Are Sales and Use Taxes Bad for Business?
Property taxes can be straightforward. Weil believes the bigger concern is sales and use taxes.
The California Board of Equalization distinguishes between sales and use tax.
California imposes a sales tax on retailers for the right of selling tangible goods or merchandise. This tax is usually passed on to the consumer.
Use tax, by comparison, is imposed directly upon the consumer for tangible personal property used, consumed or stored within California.
There are a few situations when a vessel might not be assessed a sales/use tax, such as whenever is purchased for commercial deep-sea fishing outside the state’s territorial waters, use outside of California, during interstate or foreign commerce, or received as a gift.
Some say the California’s sales and use taxes motivated boat buyers to go elsewhere to save money. There is not any evidence to support such a claim, according to Weil.
“From my knowledge of the industry, people are much more concerned with the assessment of sales/use tax than they are with the assessment of property tax,” said Weil. “Sales/use tax is assessed at the time of purchase, at a rate of around 10 percent of the purchase price. Property tax is assessed annually at something around 1.1 percent of the current value of the boat.”
Are these sales and use taxes bad for boating transactions in California? Weil said a perception of sales and use taxes being bad for business certainly exists among boat brokers, but he also pointed out no objective evidence exists to corroborate such claims.
“The yacht brokerage industry has argued that sales and use tax laws in California have been bad for business. There is a certain anecdotal logic to that claim but there is no objective evidence that I am aware of,” said Weil.
West offered a different perspective, saying boat buyers who travel out of state to find the boat they want they tend to find fairly favorable tax scenarios when compared to California. He called the tax scenarios in California “onerous.”
Boat owners could go elsewhere to buy a boat, register it in a tax-friendly state, stay there during the tax assessment period, and then return to California later in the year instead of paying the state’s uncapped taxes, according to West.
He added California should consider implementing a tax cap similar to Florida.
“I think it’d be a good shot in the arm,” West said.
Taxes in Other States
How does California fare against other states in terms of sales and use tax?
Well boat owners in Rhode Island, in addition to not paying property taxes on their vessels (if purchased and registered in state), are exempted from sales taxes on boats or boating services.
Favorable conditions also exist farther down the Atlantic seaboard in Florida, where boaters are subject to a sales/use tax cap of $18,000 on boat or vessel sales and $60,000 maximum liability on repairs. There are also a handful of exemptions available to nonresidents and foreign-flagged vessels.
Meanwhile Washington State has explored a $28,500 sales/use tax cap.
Wenthur said tax-friendly states are making it easy on boaters to make port and spend money locally (which, potentially, is less money spent in California).
There are multiple factors to consider when contemplating where to dock your boat and establish situs. While a state might be a save haven there might be other factors to cancel out any financial savings, such as costs of winterizing your vessel or traveling to and from California.