Proposal to eliminate benefit could be costly to boat owners, but will the bill make it to governor’s desk?
STATEWIDE — Taxes – if you believe the group of people we identify as “they” – is one of two guarantees in life. Some would argue death, life’s other guarantee, might as well be applied to California’s boating public based on the way state officials and policymakers have been handling tax policy of late.
More specifically: would the elimination of tax deductions on second homes result in diminished boating activity in California?
The recent enactment of Senate Bill 1 (SB 1) already raised the specter of diminished boating activity due to tax policy. SB 1, as we reported here in this issue of The Log, applies a gasoline tax hike to all boaters fueling up at California gas stations and fuel docks.
Removing tax deductions for second homes would likely increase a boater’s exposure to Uncle Sam, opening the door for prospective boat buyers – whether first-timers or repeat customers – to second-guess being on the market to purchase a vessel.
The natural instinct would be to politicize the issue, but doing so would take away from having a genuine conversation on finding ways to address – and solve – some of California’s most pressing issues.
Let’s take Assembly Bill 71 (AB 71) for example. Assembly member David Chiu, D-San Francisco, introduced AB 71 in this legislative session in hopes of shoring up some funds to address California’s rising real estate costs. Purchasing or renting a home in any of California’s major population centers is becoming increasingly difficult, giving greater value to formal affordable housing initiatives and programs.
A boat could qualify as a second home under AB 71.
“The deductions are limited to $1 million or less in mortgages used to buy, build, or improve the home. This limitation applies to the combined mortgages of the first and second home,” a legislative analysis of AB 71 stated.
Chiu proposed the elimination of tax deductions for second homes as a means to increase revenue for California’s affordable housing initiatives – no different than policymakers justifying the enactment of SB 1 to help raise enough money to fix our aging roads.
It’s not unfair to question whether the reasoning behind bills such as AB 71 or SB 1 are genuine, but let’s be frank: California’s roads are in desperate need of repair and housing is becoming less and less affordable.
These problems are not going away with the flick of a magic wand. The money to address these issues – and many others – has to come from somewhere. It’s just a matter of figuring out how boaters can pay their fair share without being discouraged from actually boating.
AB 71, for example, proposes to use tax revenues from California’s second-home owners (and boat owners) to leverage $1 billion of federal resources for affordable housing programs in the state.
Part of the problem here, obviously, is the perception society-at-large might have of boaters. Someone who can afford to pay for a landside dwelling and a vessel certainly has the funds to be on the hook for a higher tax liability.
However boaters can point to a National Marine Manufacturers Association (NMMA) policy brief issued a few years ago to debunk such perceptions. The policy brief specifically stated about 79 percent of boaters are middle-class and have an annual household income of less than $100,000. The average boat price in 2010, according to NMMA, was $16,517 – roughly the same cost as a mid-sized sedan from one of the major auto manufacturers.
Increasing the tax exposure on a boat owner with an annual household income of less than $100,000 would certainly sting his or her wallet – and perhaps a disincentive to future boating purchases.
Boating advocacy groups are obviously paying close attention to AB 71’s progress through the legislature. Groups such as California Sportfishing League and Recreational Boaters of California, for example, opposed Chiu’s proposal. Legislators voted mostly on party lines as AB 71 moved through two Assembly committees in early March and mid May.
There are no indications either way – as of yet – of whether AB 71 would make it to the governor’s desk or instead die before it ever gets to a vote. Accordingly there is still time to contact your local legislator and let them know your thoughts on AB 71.
Would the added tax exposure prevent you from buying a boat? Or is a bill like AB 71 necessary for the sake of affordable housing? Is there another way to increase state revenues for affordable housing initiatives without eliminating mortgage deductions for second homes?