Sales / Use Tax Enforcement on East Coast

[RapidRoy]

Hey, a question from a newbie for you experts.

I'm buying a boat in Florida. They provide a sales tax exemption if you get-out-of-state within 90 days. You can return to Florida after keeping the boat out of state for six months. That sort of fits my plans, to be coastal cruising on the east coast. Cheasapeake in the summer, Bahamas in the winter, etc.

QUESTION: If I skate on the sales tax in Florida, what's the exposure in the other east coast seaboard states? If I go cruising with month long stops in Maryland, Virginia, North Carolina, South Carolina, Georgia, etc, what's the chances of having issues with the authorities ???

....Rapid Roy

[TaoJones]

Originally Posted by RapidRoy

Hey, a question from a newbie for you experts.

I'm buying a boat in Florida. They provide a sales tax exemption if you get-out-of-state within 90 days. You can return to Florida after keeping the boat out of state for six months. That sort of fits my plans, to be coastal cruising on the east coast. Cheasapeake in the summer, Bahamas in the winter, etc.

QUESTION: If I skate on the sales tax in Florida, what's the exposure in the other east coast seaboard states? If I go cruising with month long stops in Maryland, Virginia, North Carolina, South Carolina, Georgia, etc, what's the chances of having issues with the authorities ???

....Rapid Roy

Wherever the boat is going to "live," RR, you will have to register it. Even if the vessel is of sufficient size to document it with the USCG (five net tons), it must be registered in the state where you will keep it. Think of it this way - what would you expect the consequences to be if you failed to register your car and happened to get pulled over for some reason. When you can't produce the registration proving the car is legally yours, do you think you can convince the person who stopped you that the car isn't stolen?

If you are going to forego registration and/or documentation in an effort to avoid paying sales tax, then you must hope to never be boarded for any reason. Your vessel could be impounded, and you could be jailed. Is that a risk you're willing to take for the sake of saving some amount of money by evading payment of sales tax?

If you do decide it isn't worth it, all is not lost. If you can legally register in Rhode Island, there is no sales tax. Similarly, in North Carolina there is no sales tax on used boats, and the tax on new boats is capped at $1500. There is, I believe, a cap of $300 in South Carolina. But if you're from, say, Massachusetts, and don't have a legitimate reason to register your vessel in one of those states, then I would suggest that you factor your state's sales tax into your boat-buying budget.

Inasmuch as you plan to sail your new boat to a foreign country (Bahamas) in the future, you will have to produce the paperwork to prove you legally own the vessel when you clear in. Even if you think, for whatever reason, that you will just cruise the Bahamas without clearing in, and actually get away with it, I doubt very much that you will find re-entering US waters undetected an easy task. If you were to get caught trying to sneak back into the country at the helm of a vessel that you can't prove isn't stolen - well, how does "one-way ticket to Gitmo" sound?

I refer you to another thread, and the response by pblais:

Originally Posted by Pblais

There can be only one form of title documentation (proof or ownership). Yes, some states require stickers or such tax stamps, some tax you but don't bother giving stamps, stickers or other papers (like VA here), but there is is only one form of title registration. A USCG documentation is a registered "title" with the federal government. A state registration is a form of title registration too but with the state (like your car). The title is registered or it's not - but never it two places at one time. It's like legally being married twice - ain't possible. You give one up if you do the other. USCG documentation requires you remove state registration numbers from your bow - always! You still pay any state taxes.

No state can require you to register your boat "title" if it's USCG documented, but they can tax the heck out of you no matter what they call it. They don't really care since they get the same money in either case. MD does it too. They require a sticker that they charge you for but in no way is it a proof of ownership aka "registration".

In a foreign country they could care less if you owe back taxes, but you should be able to prove on demand that you really own your boat (even if you have a loan yet to be paid off). If you ever buy a boat with a loan you will be required by the lender to document the boat if it qualifies under USCG regulations. Mostly it is so they can take the boat no matter where you run to should you default.

I also refer you to the following link:
Frequently Asked Questions Vessel Documentation
This is the Coast Guard's FAQ page, and should prove informative.

TaoJones

[cchesley]

While I don't think it works quite the way TaoJones has described regarding proof of ownership, I can say this. USCG Documentation will get you the ownership proof without paying taxes on the boat. HOWEVER, once you find a place you like, you'll eventually pay either sales tax or use tax and possibly an annual excise or property tax. Each state can have varying 'timers' when their taxing authority kicks in.... 30 days, 60 days, 6 months whatever but if you stay longer in a 12 month period you'll owe one or the other. I paid sales tax in Maine last year (5%) because I wanted to stay in Maine waters longer than the allowed 30 days. You could say that it was a $22k summer in Maine. But I'm now in WA and since I paid Maine sales tax, I wasn't liable for WA sales or use tax which would run over 8% depending on which county I was in. So I actually 'saved' over $12k by being 'up front' early on. I'm currently on a cruising permit in WA because I'm over their 60 day limit in their waters which triggers the excise tax. Fortunately that's 'only' 0.5% but can be deferred for another 120 days by getting the cruising permit. Know the rules, pay your money, keep it clean, and you won't be sweating everytime the local gendarme boat passes by. Will they catch you? Maybe not if you keep moving, I don't think they will pull you over to see your registration just out of curiosity.

Often however, some states have roving inspectors checking marinas and/or get a list of all boats in marinas on Jan 1st or some similar system. You really do best by factoring it all into your boat buying budget. It does suck to see the gummint just reach into your pocket because you were able to buy a boat for yourself but that's a whole nuther thread.

[RapidRoy]

Thank you for the replies. Let me clarify... I'm ONLY focused on the sales tax or use tax issue. How is it handled by the various states? How is it enforced?

I don't see a tie-in with the registration process, at least not in Georgia, the one state I'm personally familiar with. Georgia will issue a state registration over the internet, and they don't ask how much the boat costs or when you bought it. They only ask make, model, length, and hull number. The registration ( in Georgia ) doesn't tie in to sales tax.

However, the Florida Exemption will be sent to Georgia, and will trigger Georgia to issue an "import tax" bill. (the same as a sales/use tax). Gee, it's so nice of Florida to notify the other state. (Smile!).

What do the other states do? How does the enforcement of sales tax / use tax work ???

[Lynx]

I bought a dinghy from Maine and had it shipped to Fl. I was asked if I paid any taxes. I said no and had to pay the full taxes to Fl. If I had paid any to Maine, I would not have had to pay as much in Fl. Different states vary. I do not know of any way around it. Make sure you have the paperwork to prove it. Some states will allow a documenation and not have to pay taxes.

Another point, If you keep your boat in Fl to long and do not get the paperwork done in time there can be a heavy fine. The same with other states. No standard time.

[Strygaldwir]

Typically, if you can establish that you have had the boat for 1 year or more, you don't have to pay "sales" or "use" tax on a boat. How they count that year, has a few "O"s in it. The most significant thing is the boat must have been inside the US for the time to "count".

During that years time, each state has rules on how long the boat can be inside their state before the tax (use or sales) kicks in. That is usually from 30 - 90 days. If your boat stays their over that time, most states will say you owe them "sales" or "use" tax equivalent to their tax minus the tax you have already paid. If you have already paid %3 in another state, and they charge 5% in their state, you owe %2.

But, if you are Coast Gaurd documented and keep moving inside US waters for a years time, it appears you are completely legal in not paying any sales, or use tax. Dinghy's are another issue because they can't be documented, but they can be dedicated tenders for a larger boat. I am still trying to figure the rules out on them.

I went to get my dinghy registered in Florida. After much discussion, they said since I was not a state resident and was taking the boat out of the country and wouldn't be using it in Florida waters that I did not have to have it registered there! But, if I did use it in state waters it would have to be registered within 60 days or such (Don't remember the exact time). But, during that period, If I did use it within state water, I should have a copy of the title and sales receipt with me to prove ownership.

Boats US used to have a great site which explained all the different visit rules for the states. Well worth having if you are planning on managing the tax implications.

The other point is some states require yearly property taxes. They kick in under a different set of rules. Still trying to figure that part out!

Fair winds.

[TaoJones]

Originally Posted by RapidRoy

Thank you for the replies. Let me clarify... I'm ONLY focused on the sales tax or use tax issue. How is it handled by the various states? How is it enforced?

I don't see a tie-in with the registration process . . .

It would be easier to give you an answer that fits your circumstances, RapidRoy, if you would provide more information. For example, in what state do you reside? In what state, if any, do you plan to keep the boat? What is the size of the vessel you're buying in Florida? Does it come with a tender? If not, will you be buying a tender?

It seems to me that you are asking a very broad, rather generic, question; i.e. How can I buy a boat and not pay any sales/use tax on the transaction? If that is indeed what you are asking, I would answer that there is no way to legally avoid paying the tax. That is not the same as saying there is no way to avoid paying the tax - I know many boat owners who never have paid any tax on their vessels - but the operative word is "legally."

Because you are seeking a way to avoid paying state sales or use tax by throwing the question into an open forum on sailing and cruising, rather than consulting a tax attorney, I assume you are not much bothered by legalities. That makes your question entirely different; i.e. How can I evade sales/use tax and still have a plausible explanation that is so opaque even a tax court judge won't find I've done anything wrong?

I would be very surprised if anyone here will offer an answer to that question, and even if you get one, how comfortable are you going to be relying on such advice? Don't think that because there are boat-owners out there who have evaded the tax requirements and never been caught, that there is some fool-proof way to evade tax payment and cruise happily ever after.

When Pat and Ali Schulte were completing their four year circumnavigation having just re-entered American waters and were motoring to their slip at Las Olas Marina in Ft. Lauderdale, they were stopped by the water cops. Here is how Pat described the encounter in Bumfuzzle's log:

"We pulled into Ft. Lauderdale around 5 o'clock and were almost immediately pulled over by some sort of water sheriff. He pulled alongside and asked if this was our boat. We said yes and he then asked if we had an Illinois drivers license and talking about how Illinois required registration of its boats and yet he didn't see any registration stickers on us. I didn't know what he was driving at but found it hard to believe that he had the authority to enforce Illinois law down here. Ali came outside with our drivers licenses to which he almost seemed disappointed. He explained that there are a lot of tax cheats around here before zooming off. Apparently he thought he was about to nab himself a real white collar criminal."

In that instance, they were stopped in Florida because they had an Illinois hailing port on their federally documented vessel, and no state registration numbers on their bows. While they were not in violation of any Florida laws, technically the vessel should probably be registered in Illinois, and Illinois sales/use tax laws complied with. From the Coast Guard FAQ I included in my post above, I quote the following:

"IS A DOCUMENTED VESSEL EXEMPT FROM STATE JURISDICTION?

No, all documented vessels must comply with the laws of the state in which they are operated. The vessel's document must be shown to state law enforcement personnel upon their demand. States may require documented vessels to be registered (but not numbered) and to display state decals showing that they have complied with state requirements."

So, if you choose to register your vessel in Rhode Island, for example, to avoid paying any sales tax, I would suggest that you have a legitimate address there to use when you do. If may be that you are from a state far inland, like the Schultes in the above incident, and hold a driver's license for that state. If you have federally documented your vessel, but have not registered it with your state (and, if it's a coastal state, you never take it into that state's waters) you can probably avoid paying the sales tax your state is legally entitled to.

Your plan to cruise the east coast in the summer, and the Bahamas in the winter, infers that you intend to keep on the move. That's good, because as another poster stated, there are people whose job it is to check on vessels in marinas for the sole purpose of finding those owned by people who haven't paid any legal obligation to the state where the marina is located. If you're truly "just passing through," you shouldn't have a problem, but if you keep your vessel within that state's waters beyond some amount of time defined in that state's statutes, you will owe something to that state.

I still maintain that it is far simpler, and smarter, to factor legitimate sales/use tax into your budget, pay it, and cruise in peace.

TaoJones

[sv_makai]

It is not just the law enforcement folks checking the boats, in DC and VA (where there is annual property taxes) there are docks walkers who just use the time they stroll the docks to look for boats docked long term in an area and pass the info on.

In MD where our boat is docked you have 90 days to visit in the Bay before moving on. Some cruisers just go an spend some time in VA and then back up the Bay which resets the clock.

In our marina now we have seen that if you have annual dockage agreement it shows that you have the intent of keeping the boat in MD. This makes it hard to justify taking the boat out to VA for the weekend and coming back to reset the clock.

Point is be very careful as each state has different requirements including how the dinghy must registered and outfitted. They are not always the same as the minimum requirements for a doc'd vessel.

[Pblais]

Just to be clear proof of ownership and where you are a resident both have no effect on taxes owed in the slightest. As far as southeast coast states in order of most to least out for full enforcement I would rate them.

1. Florida - you need to prove you are innocent or you owe. If they find out you bought a boat in FL, you need receipts that prove you left before the clock ran out or you owe sales tax. Two neighbors brought boats back to VA and both had to prove it months after the boats were here. They had fuel receipts in Georgia that saved them.

2 Maryland - not more aggressive but perhaps more organized. Remarks from captain Bil are dead on. Sign an annual slip contract and you owe no questions or excuses required. They have state law backing this one up.

3. Virginia - You can owe property taxes based of where your boat lives not you. if your boat is here on Jan 1st you owe. In that way it's not unlike MD, but the property tax isn't that bad if over 9 tons. The trick with VA is if you pony up $2000 right away when you come or buy a boat as sales tax that is the maximum sales tax you can ever owe in VA. If they catch you it's 5.5% with no max limit. We have a few places with no property taxes on boats. They appear to be hanging on the edge of repeal. You are less likely to be caught here than in MD.

I don't have a lot of first hand info on the Carolinas or Georgia. I know friends that always wintered in Charleston with no tax problems.

Most all states will accept tax paid to another state as partial credit against sales tax owed in the current state. I know of no state that officially lets you pay any tax in one state and then never owe tax again in their state. That would just be a case of poor enforcement. Some states don't enforce the whole process well, but coastal states do a far better job than inland states.

[Strygaldwir]

Of course there are legal ways of avoiding taxes. Legislatures make exceptions constantly to encourage certain activities, or discourage others. Now, understanding the requirements and what triggers taxes in certain instances can be a daunting task. I guess that's why some folks make a career out of it!

We could go on and on about the why's and where fores, the best thing is to see a tax specialist in this area.

Moving your boat out of the jursidiction of the state before the tax law provision attached is exactly legal. Moving it to another marina so they can't track you, that's not. Will it work, probably. Is is legal, bet not. Moving it back to the state too soon while they might not be able to catch you, once again, probably works, you still owe the tax.

Having the receipts to prove you did what you said you did, makes it legal and means you won't owe.

Now, property tax law is another issue....

[hellosailor]

Roy-
Sales/use tax is normally collected at the time of sale (by a broker, unless you have an exemption form) or at the time of state boat/vehicle registration. Each state has different rules and yes, almost all of them are on the internet.
Typically, if any "motor vehicle" is within any one state for 30 days, it is required to be registered in that state--which then tolls taxes and sometimes insurnace requirements as well. And, once you've registered the boat there, that address may be used as a basis for other things like income tax, jury duty, and voter registration. Real property taxes, too.

Each state has different policies about this. In some places (like DC) you may be required to show proof of registration and paid sales tax before they'll contract a slip for you. And every state has taxmen who walk the docs, looking for boats that look like they need to be arrested for tax frauds. Literally.

Move back into Florida in six months--without showing proof that you were registered and apid elsewhere in the interim--and IIRC Florida will then hit you up for taxes AND penalties.

Your best bet is to pick whatever is a taxable and acceptable place for you, and register the boat there. Possibly establish a residence, possibly keep the boat there for a required portion of the year in order to keep it legit. But if you remain in any other state for more than 30 days, and someone notices you are there--but haven't been spending time in the 'home port'...and they may demand reregistration, taxes, etc.

Not to mention, in order to use a marina you may be asked to show proof of liability insurance. Your insurance policy will be based on a home port--where you are registered, and your policy may have geographic boundaries based on that too.

So by all means, "venue shop". But realize that you've really got to establish a legitimate home port for your boat, because the tax men all talk to each other these days.

Or you could register the boat in Iraq or Pakistan or Afghanistan and change your name to "Osama". Apparently no one knows how to find anyone named Osama. (Sigh)

[camaraderie]

TAO...you said:
Similarly, in North Carolina there is no sales tax on used boats, and the tax on new boats is capped at $1500. There is, I believe, a cap of $300 in South Carolina.

Unfortunately...in both of those states there is a hefty personal property tax assessed ANNUALLY. Where I am it is the same rate per hundred as real estate tax.
************
My own assessment of East Coast taxes is that if you keep moving and know EACH states "grace period", no one will ever bother you about it if you have a documented vessel...but once you stay too long or sign a long term dock contract they will get ya. So you end up paying transient rates for years at marinas or long term rates and taxes once. Gotcha either way.

[TaoJones]

I was told by a boat broker in Wilmington, NC six weeks ago that if you had your NC-registered vessel out of the state on January 1st, you wouldn't get dunned for the "property tax." Don't know about South Carolina.

For RapidRoy's purposes, I agree that if he gets a boat that is at least five net tons, gets it documented, cruises up the east coast through the summer without staying in any one place too long, cruises back down through the fall, then jumps off for the Bahamas to cruise through the winter/spring, he can probably avoid ever having to pay the tax he's trying to duck. Others have done exactly that.

He may even legally skip state registration if the vessel is home-ported in say, Denver, Colorado or some other far inland place that doesn't know one of its citizens has a boat on the east coast somewhere. As long as it's federally documented, it's legal, but as hellosailor pointed out, state tax authorities do talk to one another.

The day will probably come, though, when he may have to leave the boat for some period of time - say there's a family emergency back "home" - and it must be left in a given place. If it's there long enough, it could create a problem for him. Isn't it just simpler to get into compliance with the taxman when he buys the boat, and stay that way?

TaoJones

[Ex-Calif]

Another reason to live in Asia. I love this forum. I'm reminded every day why I live here.

Singapore has basically a "flat" income tax that peaks around 15%. There are like only 5 things that count for deductions. Because there are no complicated provisions there are no loopholes and Singapore runs a huge budget surplus.

You pay 5% GST (Sales tax) on anything new. Anything used has been paid for - why tax that again? That's right a 2 million dollar used boat is tax free. OK it's going up to 7.5% this year. Buy a used boat out of country and bring it in? "Declared" value is taxed at GST rates. But resell it in Singapore = no tax.

It is basically an open port. Anything sans alcohol and tobacco is basically duty free if it for personal consumption or use.

HOwever - getting back to nautical - visiting boats are often surprised at the port visiting fees that are tricky to understand and add up quickly if you have an extended stay. Most cruisers figure it out and then head to Malaysia which honestly is a little more cruiser friendly.

[cnj]

I did this last year. We bought the boat in FL and sailed to RI. The only place we stopped was in MD. No issues with FL on that, but you do have to send FL proof you went out of state (we used the receipt from the marina in MD but make sure they put your hull # on it) and we had to prove we registered the boat in another state (I live in RI so there's no sales or use tax so all I had to pay for was the registration)