How Are State Sales and Use Taxes Connected to County Personal Property Tax?

We read your column in the last issue of The Log regarding the return to the “one-year rule” for the assessment of sales and use tax in California. We’re wondering, though, why the rule is connected to the assessment of personal property tax by the county, and what effect the new rules will have on property tax. We are California residents, but we own property in Oregon and we were considering the use of that address for the Coast Guard documentation. Will that have any effect on the property tax assessment? Can you explain some of the rules for the assessment of personal property tax?
The return of the “one-year rule” for the assessment of sales and use tax includes a provision that requires the payment of the tax if the boat is subject to the assessment of property tax by the county during the first year after the purchase.

This is an odd provision, since these two taxes really have nothing to do with each other. They are assessed by different arms of government and the rules for the assessment are completely different. The link between these two taxes can create a trap for the unwary, and it has little foundation in public policy.

Personal property tax will be assessed on a boat annually if the “situs” of the boat is in a California county on Jan. 1 of any particular year. The residency of the vessel owner has nothing whatsoever to do with the question. The only thing that matters is the location of the boat.

“Situs” is basically the location where the boat is usually moored or stored. But don’t confuse “situs” with “home port” or “hailing port.”

U.S. law provides that the “homeport” of a documented vessel is the location of the Coast Guard facility where the vessel’s registration records are maintained. At one time, this would have been the Coast Guard district headquarters nearest to the boat’s regular dock or mooring location.

In 1995, the Coast Guard consolidated this function into one office and moved it to the National Vessel Documentation Center (“NVDC”) in Falling Waters, W. Va. The NVDC is now, therefore, the homeport for all U.S. documented vessels, regardless of where their actual home is.

Similarly, the “hailing port” of a vessel says little about the boat’s whereabouts or its regular mooring location. U.S. law allows a vessel’s “hailing port” to be any municipality, port or place that is formally recognized by the U.S. Department of Commerce. It need not be adjacent to water and it need not have any relationship to the boat owner. You can pick a city at random out of a hat and use that city for the hailing port, if you wish.

With this in mind, the county tax assessor may use the Coast Guard documentation as a starting point in evaluating the “situs” of a boat, but that information is never conclusive. Instead, the assessor will look at things like slip rental agreements, mooring ownership and where the boat was located during the previous year.

Marinas in California are required to report their tenant lists to the tax assessor in their county, so this is a common source of information. Representatives of the assessor’s office may also enlist the aid of the local harbor patrol to cruise the harbor looking at boats that are moored in front of private homes.

Property tax is assessed on a boat at the same rate as the assessment for real property. This varies slightly from county to county, but it usually amounts to around 1.1 percent of the value of the boat each year. If a boat owner receives a property tax bill in error, or if the assessed value is incorrect, the burden of proof is on the taxpayer to prove that the assessment is incorrect. This amounts to a “guilty until proved innocent” approach to the process, but in fact this approach is the same for all taxes that we pay.

If a boat owner contends that the tax should not have been assessed at all, he or she will need to prove the whereabouts of the boat during the year, and address the particular issue that led the assessor to conclude that the “situs” was within the county for that year. If the amount of the assessment is wrong, the boat owner will need to produce an appraisal by a reputable marine surveyor or provide another competent measure of the value of the boat.

Unfortunately, there are almost no tax-planning strategies (aka “loopholes”) to get around the annual assessment of property tax on a recreational vessel. But, as always, every boat owner will have a unique set of circumstances, and an attorney or tax professional familiar with these issues should always be consulted.

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