I purchased a boat two years ago through the purchase of a “single-asset” Delaware LLC. The hailing port on my Coast Guard documentation is identified as Wilmington, Delaware, and that port is printed on the transom of the boat. The address of the managing owner on the Coast Guard Certificate of Documentation is the Delaware address for the LLC’s registered agent in Delaware. I keep the boat in Marina Del Rey, but I was advised that it would not be subject to annual property tax in California because it is not registered in California. I nonetheless received a notice of an “escape assessment” from the Los Angeles County Tax Assessor this week and was advised that I owe unpaid property tax and a penalty. Can I fight this?
Our reader received some bad advice, and he will probably need to pay the back taxes and the penalty. Let’s take a look at his case as we review the basics of California personal property tax in general and how it is assessed against a boat.
Personal property tax will be assessed on a boat annually if the “situs” of the boat is in a California county on January 1st of any particular year (referred to as the “Lien Date”). The residency of the vessel owner, or the state in which a corporation or LLC was formed, has nothing whatsoever to do with the question. The only thing that matters is the location where the boat is usually moored or stored. But don’t confuse “situs” with “home port” or “hailing port.”
US law provides that the “home port” 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, West Virginia. The NVDC is now therefore the Home Port 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 basically pick a city at random out of a hat and use that city for the hailing port if you wish. Our reader, for example, keeps his boat in Marina Del Rey but he chose Wilmington, Delaware as the hailing port.
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 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 in California it usually amounts to around 1.1% 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 whatever evidence that was used by the assessor to conclude that the “situs” was within the county for that year. We should also note that taking the boat to Mexico or to another State for a few months won’t change the official situs unless the boat owner can show that he or she paid property tax in that jurisdiction. If the boat owner agrees that the tax is owed but disputes the amount of the assessment, they will need to produce an appraisal by a reputable marine surveyor or provide another competent measure of the value of the boat.
So, based on the foregoing discussion, it’s clear that our reader owed Los Angeles County property tax on his boat for the years that he owned the boat in Marina Del Rey on the annual Lien Date. The “Escape Assessment” notice was the County’s way of getting his attention. An “escape assessment” is a correction to a property’s assessed value on the local property tax roll. This correction is made because the Assessor’s Office discovered property or a taxable event that should have been assessed (such as the sale of a boat or the transfer of a boat into the County) but was not. The penalty associated with an escape assessment is a ten percent increase in the assessed value of the boat for the affected years, which translates to a ten percent increase in the tax amount.
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.
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 (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com, or via email at firstname.lastname@example.org.