Our reader’s research took him to our March 5 installment of this column (“Ask a Maritime Attorney — Taxing Questions about Personal Property Tax”). That article was written in response to an inquiry about a Coast Guard documented boat, and the recording of a notice of claim of lien against that boat. It had nothing to do with a DMV registered boat, which is the subject of the referenced section of the California tax code. Unfortunately, there is nothing simple about maritime liens, and we need to expand on this explanation.
As we have noted many times in this column, a maritime lien is a security interest against a vessel that is instantly perfected when the work is completed, even if the claim is never recorded anywhere. And a maritime lien analysis is not dependant on whether the boat is Coast Guard documented rather than state registered. The most significant consequence of the place of the boat’s registration is the procedure required to enforce the lien.
Regardless of the details that accompany a maritime lien analysis, the property tax law referenced by our reader does not give rise to a maritime lien. It simply provides that — on a DMV registered boat — the DMV shall withhold registration or title transfer until the delinquent property taxes are paid. This is not a maritime lien, it is a provision for one state agency to work with another state agency to assist with tax collection.
The fact that a vessel may be subject to a particular debt or claim does not automatically mean that the claim is a maritime lien. A maritime lien is generally based on services provided to a boat. And as our reader noted in his question, a tax claim — even if it involves a boat — does not give rise to a maritime lien. The distinction between a maritime lien and a non-maritime claim is important. A maritime lien will stay with the boat after it is sold, even if it is never recorded anywhere, and in a battle of competing creditors, a maritime lien will always have priority over non-maritime claims.
Notwithstanding that a tax claim is not a maritime lien, it may still be possible for a delinquent property tax obligation to carry over against a new owner of a DMV registered boat.
The obligation to pay personal property tax in California is imposed upon the owner of the boat on Jan. 1, but the tax is not delinquent until Aug. 31 of that year. Therefore, if a boat is sold, there is a pretty good chance that the transaction will close during a time window that will require the old owner to pay the tax after title has been transferred to the new owner. The purchase contract will typically require the old owner to satisfy the tax obligation, but we do sometimes run across people who fail to comply with contractual obligations. If the old owner in such a case fails to pay property tax during the year that the boat is sold, the transaction could run afoul of this tax law.
The tax collector has no means of enforcing a maritime lien, but sec. 3205 does not make any distinction about who owns the boat at the time the notice is sent to DMV. If a new owner were to complain to the tax collector or to DMV, they would likely just tell him to go after the old owner for reimbursement. Good luck.
California Revenue & Taxation Code sec. 3205 may give rise to an unfair outcome, but it is not a maritime lien and it does not contradict federal law. If you find yourself in this situation, contact an attorney familiar with vessel tax law issues for assistance.