Beating the Tax Man - East Coast

[Hud3]

Originally Posted by Pblais

Log records can convict you more than help you. You could fake a log entry in your favor but it has been admitted in court that if you declare anything in a log that can be used to assert guilt it can be held against you. The idea is you wouldn't be stupid enough to fake something to convict yourself. A ships log as an official record is pretty much ancient history. Even in the days of old ships masters that screwed up the profit got the boot no matter what was in the log. Log books alone are pretty much worthless when you get in trouble with the law. They do however add a bit of history you may find usefully for your own purposes so keeping them is a good idea but tossing them over board wouldn't be a bad idea at the first sign of legal trouble...

Paul,

Don't be too quick to judge the value, or lack thereof, of a proper ship's log. When I lived in Lancaster County, Virginia, I needed to prove that my boat had been located outside the county for at least six months and a day in order to avoid having to pay property taxes on it. Marina and fuel receipts accounted for some of the time, but the County Tax Collector readily accepted copies of pages from my log book as proof of where the boat was, and when. Without the log pages, I would have been liable for about $3,600 in taxes.

[bene505]

As an answer to the original question, a way to LEGALLY avoid having to pay taxes on the boat: 1) Register the boat in a state that does not charge sales tax (RI, DE, others), and therefore get s sticker from that state. 2) Obey state law when you keep your boat, which generally means keep moving the boat from one state to another, even if it's just one sail every couple months.

Does this line up with everyone's understanding?

[Cheechako]

You should be able to buy the boat, Document it with teh USCG, move it along every few months and once you are gone.... you are gone. Select out-of-the-marina moorage... private homes with a slip etc. If you are in a marina for 90 days , then move to private etc. When you return the boat from Mexico, many states allow a boat to come in for the purpose of sale. He's not evading tax, he's just not paying tax that he should be paying. It's not like he's staying long...

[AnchorageGuy]

Originally Posted by bene505

As an answer to the original question, a way to LEGALLY avoid having to pay taxes on the boat: 1) Register the boat in a state that does not charge sales tax (RI, DE, others), and therefore get s sticker from that state. 2) Obey state law when you keep your boat, which generally means keep moving the boat from one state to another, even if it's just one sail every couple months.

Does this line up with everyone's understanding?

Some states are now, like South Carolina and others, using the number of days in a calender year rather than consecutive days so leaving and coming back won't do it in all states.

[joberlin]

Greetings,

In the next few months I'll be buying a boat, probably on the East coast, to live aboard and actively cruse. I won't have a traditional state residence at that point but guess I'll have to set something up somewhere? Anyone know the answer to this? What are the issues I need to consider?

Another issue is that I currently live in North Carolina and pay state taxes here. However, as I said, I'm moving. I could move to any state a few weeks before I purchase a boat and move aboard it. Does this have any potential impact on my tax liability?

If I keep my residency here in North Carolina but the boat is never in the state, how does that affect anything? Do I have to pay personal property tax on something I bought out of state and never brought to the state?

As a final question, what does it mean to establish or maintain residency, regardless of the state? Why does it matter what state that is?

Thanks.

[camaraderie]

Your residence has no effect in NC...it is only where the boat is kept that exposes you to tax either sales or personal property. Sales tax is 3% in NC with a MAX of $1500. It is the property tax that will kill ya!
Suggest you buy and then register in a state with no sales tax...then stay on the move to avoid incurring 1)personal property tax or 2) sales/use tax in another state claiming you are now "theirs".
Not really a problem if you are cruising...but definitely an issue if you hope to park in one state for an extended period.
South Carolina is good these days as you can stay 180 days a year without being claimed. Staying 6 months there and then heading south and over to the Bahamas for the other 6 months is one way to avoid annual fees or big one time charges.

[anotherT34C]

I do play pretty fast and loose with my dinghy registrations (mostly out of laziness). I don't think I'd bother playing games with a large asset (like ~100K). The penalties are just too severe, IMO.

[Tempest245]

Sales Tax in NJ is now 7 %. Display of an annual registration and an annual sticker is required even if the vessel is documented, if you keep the vessel in NJ. I am only relieved the of the requirement to have registration numbers on either side of my bow. A Documentation number must be permanently marked on the vessel.

Dinghies must display registration numbers on either side of the bow along with a current annual sticker .

It's not likely that NJ will provide a safe harbor from the tax man. Especially with a large budget deficit looming

[Jonathan Eells]

In conversation with a friendly boat broker recently, he told me an interesting story about how one client of his sold their boat without triggering a taxable event for the new owner (in California).

California's own "Use Tax" laws state that if a boat is transferred to an LLC for shares in the LLC (not cash or other easily valued considerations), then that transfer does NOT trigger a use tax on the LLC.

Then, the shares of the LLC may be bought and sold between interested buyers and sellers which makes the new LLC shareholder the de facto owner of the boat, with the boat being the (basically) only asset of the LLC. But LLC share exchanges are not covered by California's sales & use tax, so the broker suggested that this was the way to avoid triggering a hefty tax on the purchase of a vessel.

In effect, once the boat is in an LLC, its ownership never changes. Only ownership of the LLC shares actually changes, and that transaction isn't regulated by the sales & use tax.

I am a caveman about these sorts of things, so I wondered if this broker really knew what he was talking about. Could shares of an LLC that happened to have a boat as an asset inside the corporation be sold from one person to another, without triggering a use tax event for the new LLC (boat) owner?

[Pblais]

In conversation with a friendly boat broker recently, he told me an interesting story about how one client of his sold their boat without triggering a taxable event for the new owner (in California).

Tax advice gained from a boat brokers story about a client isn't the same as a tax attorney. Tax advice gained from the Internet might be just about as reliable.

Something someone once did may not be the same when you try to do it. Should California establish case law, they could prove you set up the LLC as a tax dodge. The whole deal comes tumbling down with penalties and interest. They seize assets, and blackmail you with jail time until to agree to pay. With tax collectors you are guilty until proved innocent.

You could do it today and suddenly find a change in the law makes you retroactively guilty of tax fraud. Many tax shelters fell under the same axe. I don't see California in a position to get sloppy collecting taxes.

The most sure fire way to avoid California taxes would be to never bring the boat there. You then escape the high slip fees as well and taxes are chump change compared to those. That really is true.

[imagine2frolic]

I did exactly what you propose. I was a resident of Ca. when I bought Imagine in St. Maarten, a German flagged boat. I registered the boat in Ca. without paying any taxes. I only paid the registration fees. They can pull the book out to verify this.

At the time of purchase it was 6 months without touching Ca. waters, and you are exempt. The boat has never seen Ca. water, and therefore no taxes. I moved so much there was no reason to switch state title. Now that I am in one spot I have switched state title, and no taxes, because of my exempt status through Ca.......i2f

[sck5]

Doesnt anyone just pay the tax and live relaxed without having to move the boat all the time? I am happier knowing I am legal than I would be obsessing about whether some tax guy was going to catch me next week.

[Pblais]

Doesnt anyone just pay the tax and live relaxed without having to move the boat all the time?

Most people do. If you move around the legailities get complicated as what you may have already paid in use tax in most states applies to what you owe in the new states. Most just ask for the difference so keeping records matters. Actually keeping records if you are fighting taxation also maters.

You also contend with the idea that not all state governemnts are that well organized at collecting owed use tax. I expect the pressure to get better at it will change.

If you have ever gone over the non duty free limit on a US customs form when coming back it can happen. Those records can end up in a state tax office too and they come after the use tax. They usually throw in the city tax too. Often many years later. It's happened to me. Same goes if you ever shipped in items from another country by Fedex.

[Mule]

Originally Posted by Pblais

Tax advice gained from a boat brokers story about a client isn't the same as a tax attorney. Tax advice gained from the Internet might be just about as reliable.

Something someone once did may not be the same

You could do it today and suddenly find a change in the law makes you retroactively guilty of tax fraud.

I "believe" (sounds like Bush) that the expo facto principle in the US Constitution trumps the ability of any state or federal law being enforced retroactively from time passed as a law.

I am struggling with the tax issue also. I am doing a refinancing of my house in order to buy a boat and have the federal interest tax deduction. I co-signed on a house for my mother, she does not need the deduction so I take that one and if I were to finance a boat I would have to choose between the boat and my current house for the second home deduction. There is also the lower interest rates available currently for primary dirt home vs boat financing, 5% vs 7-8% for a 25-35 year old boat, if you can get a loan at all. That being said, a home refi makes sense.

Here is the rub, TX wants 6% of the purchase price for the boat. I send quite a lot of money to Austin already yearly to be misappropriated for things I am opposed to and I really have no interest in giving Perry (Gov) more money to enrich his robber baron friends. To be blunt, I feel I pay my fair share already. So, let the games begin.

I do not see how it is any of Texas business as to how I spend MY money, especially out of state, and when I bring a boat into the state purchased out of state I see no reason to declare it like I am arriving from a foreign country since we have a provision in the US Constitution concerning interstate commerce. I am buying for cash, in say Fl, so there should be no state tracking from out of state, but I bet there is so I am trying to do a work around. There is no other way without the state doing a appraisal as to whether I bought a fixer upper or a pristine 26 year old boat is there? Having a broker in between will make it dicey, however.

I will most likely give up and just resent it and pay the tribute but I am looking for a way out.

BTW the Bush family and a bunch of his buddies have million+ estates (plural) in a development that the public can only see from the air surrounded by a 12 ft razor wired, monitored fence with full time security on a private lake near Athens, TX. The lake and all of the mansions are within the compound. Texas Parks and Wildlife keep the lake stocked with Fl largemouth bass, at taxpayer expense. The property is classified as "waterfront recreational property" leased (for like 1 $) for 100 years to the various owners to (??????) revert back to the state at the end of the 100 years. Care to bet on that? None of us will be here to know. Here is the kicker, taxes, school and other for that one million + the Bush family pay is less than one thousand a year but down the road there is a guy that has a mobile home on 4 acres that pays $3500 a year. Talk about loop hole for the rich. CBS 11 in DFW did a story on it a few years back, the guard told them to get the hell away from the front gate, the only film was from he chopper, I am surprised it did not get hit with a stinger shoulder fired missile.

So, yeah, I have NO guilt in what I do on the TX sales tax issue on my future boat, I want it to be legal or unprovable but I will have no guilt in whatever I do.

[imagine2frolic]

When I say I was moving. It was not to avoid paying taxes. The boat was in the Caribbean for 9 months. I was just never anywhere long enough to have to get new registration, or required to retitle the boat.

I did nothing illegal, and followed the law as it was written. I did my homework to find out what was legal, and illegal to do. If the people in power write a law than can help me avoid paying taxes. I am going to take advantage of that. I don't see anyone sending in extra money with their form as a tip to the IRS. Does anyone here tip the IRS? SPEAK UP IF YOU DO