"Offshore closing" for tax efficiency in international waters

[Wckoek]

I often see boat listings with the wording “Not For Sale In US Waters To A US Resident” so I have been told that it can be sold to a US resident not on US waters, ie 12 nautical miles off US waters.
So hypothetically, does it means that any buy and sell or contracts conducted on a boat in international waters can be "efficient" by bypassing taxation?


I have heard that there are people do drugs or conduct gambling operation after they reach international waters on their boat, since there is no jurisdiction against them, I don't know if this is true.

[pjShap]

You didn't say where you're located, so maybe your situation is different. In NY state, tax is collected when you register the boat, and you are required to register the boat if it will be in NY state more than 90 days. They don't care where the contract was signed.

[Dsanduril]

The tax man always wants his due, and she has figured this one out.

When you bring the boat into US waters it will either need a cruising license (or formal entry if you want to go down that road) or it will need to be imported. If you plan to register in the US then you will pay import duty to the federal government (unless it is duty-free under NAFTA or some other arrangement).

Taxes (as opposed to duty) are a state thing, and every state is different. Florida and California (both states where foreign delivery is quite easy) both have rules that if the boat is brought into their waters for principal use within x amount of time from the date of purchase then sales/use tax is due. The "x" depends on the state, quite frequently it is six months or a year, but is widely variable.

[Wckoek]

How about if you sail the boat out, selling it offshore and register it to a tax haven in a general situation?
I understand now it might be different for different states.

[redneckrob]

Originally Posted by Wckoek

I often see boat listings with the wording “Not For Sale In US Waters To A US Resident” so I have been told that it can be sold to a US resident not on US waters, ie 12 nautical miles off US waters.
So hypothetically, does it means that any buy and sell or contracts conducted on a boat in international waters can be "efficient" by bypassing taxation?


I have heard that there are people do drugs or conduct gambling operation after they reach international waters on their boat, since there is no jurisdiction against them, I don't know if this is true.

Only if you're not planning to register or use the boat in the U.S.

This notice isn't referencing state taxes or registration fees, which are the usual taxes you pay when buying a boat in the U.S. It's solely about the import duty of 1.5% on a boat that hasn't yet been imported into the U.S. If you're buying a boat already imported into or made in the U.S. this is irrelevant to you. If you buy a boat that doesn't meet that criteria and want to be based in the U.S. you would have to pay it. The "offshore closing" would be someone who doesn't wish to import the boat into the U.S. who would close offshore and then either continue offshore or apply for a cruising permit and only stay in the U.S. for a limited period of time.

[Dsanduril]

Originally Posted by Wckoek

How about if you sail the boat out, selling it offshore and register it to a tax haven in a general situation?
I understand now it might be different for different states.

The answer to this all depends on whether or not you are a US person (not just citizen, could be permanent resident) and whether or not you bring the boat into the US. Keep it out of the US and no problem. Bring it into the US and then you have some different options. Superyachts belonging to Americans are frequently registered in tax havens, and come to the US under a cruising license, but then you have to deal with the requirements of a cruising license.

Otherwise, import and tax are pretty much your other option.

[Stewie12]

You could consider selling the boat in somewhere like Bimini and having the bill of sale notarised there.

[Montanan]

Originally Posted by Wckoek

I often see boat listings with the wording “Not For Sale In US Waters To A US Resident” so I have been told that it can be sold to a US resident not on US waters, ie 12 nautical miles off US waters.
So hypothetically, does it means that any buy and sell or contracts conducted on a boat in international waters can be "efficient" by bypassing taxation?


I have heard that there are people do drugs or conduct gambling operation after they reach international waters on their boat, since there is no jurisdiction against them, I don't know if this is true.

A boat can be sold anywhere but that does not necessarily change what the taxation requirements will be. The amount of custom's duty for selling an imported boat in the USA is truly trivial, and if it was sold to a resident of the USA and they imported the boat that was sold in international waters they would them need to pay the custom's duty because they are the importer of record. By the way, the resident of the USA is not permitted to view or board the boat when the vessel which has not yet had custom's duty paid is in US waters for sale in the USA to a USA citizen or resident which means that buyer will have had to place eyes or feet on the boat when it is in international waters.

As to jurisdiction for illicit drugs, the USA has interdiction authority in US waters and in international waters and often invokes such thousands of miles from the USA.

And as to other countries that have ratified UNCLOS and their law enforcement regarding illicit drugs there is specifically Article 27

Article 27: Criminal jurisdiction on board a foreign ship

1. The criminal jurisdiction of the coastal State should not be exercised
on board a foreign ship passing through the territorial sea to arrest any person or to conduct any investigation in connection with any crime committed on board the ship during its passage, save only in the following cases:
(a) if the consequences of the crime extend to the coastal State;
(b) if the crime is of a kind to disturb the peace of the country or
the good order of the territorial sea;
(c) if the assistance of the local authorities has been requested by
the master of the ship or by a diplomatic agent or consular
officer of the flag State; or
(d) if such measures are necessary for the suppression of illicit
traffic in narcotic drugs or psychotropic substances.
2. The above provisions do not affect the right of the coastal State to
take any steps authorized by its laws for the purpose of an arrest or
investigation on board a foreign ship passing through the territorial sea after leaving internal waters.
3. In the cases provided for in paragraphs 1 and 2, the coastal State
shall, if the master so requests, notify a diplomatic agent or consular officer of the flag State before taking any steps, and shall facilitate contact between such agent or officer and the ship’s crew. In cases of emergency this notification may be communicated while the measures are being taken.
4. In considering whether or in what manner an arrest should be made,
the local authorities shall have due regard to the interests of navigation.
5. Except as provided in Part XII or with respect to violations of laws
and regulations adopted in accordance with Part V, the coastal State may not take any steps on board a foreign ship passing through the territorial sea to arrest any person or to conduct any investigation in connection with any crime committed before the ship entered the territorial sea, if the ship, proceeding from a foreign port, is only passing through the territorial sea without entering internal waters.

[sailjumanji]

Import duty is 1.5%. It's trivial in the realm of the cost of boat ownership. And yes we paid it in 2019 when our new boat arrived Miami from Vietnam. From what I remember, it was assessed on the cost of the boat ex factory. So didn't include the shipping cost.

[wizoc]

Let me tell you a little story.
There is at least one state, RI, that does not tax sale of boats. That is fine you will not pay any sales tax as long as you register the boat there ,either as a resident or an LLC. However, move to a state such as Md. you will owe them the sales tax. That calculate the tax as the difference between the tax rate of the original state and Md tax rate. If you already paid a sales tax at a rate equal to or greater than Md. then no additional tax is owed. So based on the example you would owe 100% of the Md. tax if you moved there and kept the boat in Md. for more than 6 months. And don’t even try to finesse it. The penalties are draconian.

[jmschmidt]

Nothing new here, we did it all the time with airplanes. We would takeoff and fly 50 miles or so off shore in international air space and orbit there until we got radio confirmation that all documents for the sale or lease had been executed by the various parties. But do it right, with each party retaining their own lawyers who will stipulate that all agreements signed comply with all tax laws affecting the transfer in all countries involved.

[jmschmidt]

I forgot to mention that offshore transfers are done with ships all the time. How do you think the US was able to re-flag several Kuwaiti tankers to US flag so they could be protected by the United States Navy during the first middle east war?

[DreaminFred]

So ...

Buying an ocean-going sailboat in FL, live in PHX, AZ. AZ has NO TAX on private sales on boats, FL allows no tax payable as long as the boat leaves FL in 90 days. AZ has no ocean ports, so ???

I intend to register the boat in AZ with a “home port” of Phoenix. Any problem when/if I were to leave the boat on the hard for hurricane season which could stretch into 2 years ala COVID?

Dreamin’

[Montanan]

Originally Posted by DreaminFred

So ...

Buying an ocean-going sailboat in FL, live in PHX, AZ. AZ has NO TAX on private sales on boats, FL allows no tax payable as long as the boat leaves FL in 90 days. AZ has no ocean ports, so ???

I intend to register the boat in AZ with a “home port” of Phoenix. Any problem when/if I were to leave the boat on the hard for hurricane season which could stretch into 2 years ala COVID?

Dreamin’

As to State registration and / or titling. A boat needs to be registered in the state of principle use. If it does not reside in Arizona then it would not be valid to register it in Arizona. Each state has its own rules as to both registering and as to titling. Not all states are titling states. Most require boats to become registered within their state after a certain number of consecutive days of residing within the state. Because having resided in the State it has been deemed to have Said State becoming the State of Principle use. The State of Principle use can change during the course of the issuance of a valid registration, if that happens the prior registration should be promptly returned to the issuing State agency, and the boat registered with the new State of Principle use.

An alternative is to have the boat documented with the USCG in which case it would have a name and a port of call registered, but some states will require boats that are documented with the USCG to also be registered with the State. But a boat can only have either a State titling or a Federal documenting, it is not allowed to be titled by a State and documented by the Federal government with the USCG. A USCG documented vessel will not have displayed the registration numbers issued by the State registration agency, instead there will be issued a sticker indicating the documented boat is State registered.

Specifically as to Florida:

All motorized vessels operating on Florida’s public waterways must be titled and registered. Chapter 328, Florida Statutes, designates that FLHSMV is responsible for issuing vessel registrations and titles. Applications for titles and registrations must be filed at a county tax collector or license plate agent office. Owners have the option of registering their vessel for either one year or two years.

A purchaser of a new or used vessel has 30 days to title and register that vessel. During this 30 day period, the owner must have proof of the date of purchase aboard the vessel. Operating an unregistered vessel after 30 days is a second-degree misdemeanor.

Exemptions from Titling:

Vessels operated, used and stored exclusively on private lakes and ponds.

Vessels owned by the U.S. Government, the State of Florida or its political subdivisions.

Non-motor-powered vessels less than 16 feet in length.

Federally documented vessels.

A vessel already covered by a registration number in full force and effect which was awarded to it pursuant to a federally approved numbering system of another state or by the United States Coast Guard in a state without a federally approved numbering system, if the vessel is not located in this state for a period of more than 90 consecutive days.

Vessels from a country other than the United States temporarily used, operated or stored on the waters of this state for a period that is not more than 90 days.

Amphibious vessels which have been issued a vehicle title by FLHSMV.
Vessels used only for demonstration, testing or sales promotional purposes by a manufacturer or dealer.

Applying for Vessel Title for In-State and Out-of-State Vessels

A vessel not exempt from titling must be titled at the same time it is registered. To issue a Florida Certificate of Title for a new or used vessel purchased in or outside of Florida, the owner of the vessel must bring the appropriate titling fee and the following documents into a tax collector or license plate agent office:

New vessel – Manufacturer’s Certificate of Origin (MCO) or its equivalent statement of builder, or if the vessel is purchased in a state that does not require an MCO, the proof of ownership is an executed dealer’s bill of sale. The proof of ownership must include a complete description of the vessel, including manufacturer’s name, year, type, hull material, propulsion, fuel, use of vessel, hull identification number and length.

Used vessel currently titled in FL – Florida title accurately completed for transfer to purchaser.

Used vessel currently titled out of state – Out-of-state title accurately completed for transfer to purchaser.

Used vessel from a state that does not require title – Current registration from that state and a bill of sale from the current registrant. Bill of sale must include complete description of the vessel including manufacturer’s name, year, type, hull material, propulsion, fuel, use of vessel, hull identification number and length.

[redneckrob]

Originally Posted by jmschmidt

Nothing new here, we did it all the time with airplanes. We would takeoff and fly 50 miles or so off shore in international air space and orbit there until we got radio confirmation that all documents for the sale or lease had been executed by the various parties. But do it right, with each party retaining their own lawyers who will stipulate that all agreements signed comply with all tax laws affecting the transfer in all countries involved.

Careful with that, the tax rules for aircraft are very different than boats.