Washington State Taxes

[Microship]

Hi...

I'm closing on the purchase of my Amazon 44 this coming Monday, and had pretty much resigned myself to paying the Washington State sales tax (I'm not willing to charter or pretend to do so, and even though the current owner is an LLC, we have already determined that there is no reasonable and legal way to get around it even though there's a business model for the project).

So anyway. Everybody here already knows my pain, but it gets worse.

The boat is home-ported and moored in Anacortes, the seller lives in Anacortes, the closing is in Anacortes, and I'm taking delivery in Anacortes... which is in Skagit County. My new mooring is also in Skagit County. But the brokerage (Swiftsure) is in Seattle. I've never even been to their office. But here on the eve of closing I've just been told that Washington State charges tax based on the "store location" in Seattle, not any actual reality! That's 8.9% I get to pay instead of 8% - a difference of well over $2,000. I could buy a nice chartplotter for that.

This is seriously broken. I'm buying a boat from a guy in Anacortes, not an office in Seattle that is actually just providing a service.

Moral of the story: if you must use a broker, choose one that has an office in a county with the most favorable tax rate... though it's not clear what would happen if the location of the seller's broker and buyer's broker were different (I suspect it's defined by the seller's broker, or the "store").

Steve

[Intentional Drifter]

Steve --

That is not my understanding of how it works, but rather where you register the boat. I don't know who told you that, and I could be wrong, but I'd first check with your local Dept of Revenue office. Here is also this, from the DOR,

Determine the location of my sale

Note, they say that the location of the sale is where the customer receives the goods. This may get complicated, but DOR can help you figure it out.

Good Luck,

ID

[Microship]

ID... thanks for the link! If I read that correctly, though, that policy doesn't kick in until July 1, 2008. Still, it might indicate that they know the system is broken.

I'll be all over it tomorrow... thanks.

Steve

[Intentional Drifter]

Refer to the actual WAC: WAC 458-20-145: Local sales and use tax.

Specifically, read toward the bottom "Rule I": Secondly, the total tax is determined by the place at which or from which delivery is made. For most retailers the location of his place of business governs the local tax application. He collects the tax if his place of business is in a jurisdiction levying the local tax, even though he may deliver the goods sold to his customer to a location in the state not levying the tax.

I can see why DOR revised the WAC, it is vague in transactions like this. I'd suggest seeing if the broker would write it up with language like "the Buyer will be responsible for paying any Sales or Use Tax due". Then, you could go to your locals. Otherwise, ask your local Skagit County people about it.

ID

[Microship]

Wow, what a tangle this is. I've been researching it heavily, as has my broker, including phone calls with various folks at the Dept of Revenue (who have been helpful).

The short version of the story is that the interpretation has changed over the years. Until 1994, the tax was simply based on selling broker location (since they are tasked with collecting it). Then it changed to be based on where the boat was going to be moored, on the theory that the tax partially goes to services that would be consumed in a given county. In 2000 an argument about this erupted, and it was changed back to the broker location - again based on the theory that it is they who collect and then remit the tax.

The inanity of this is that, as my broker pointed out, they do not have "constructive possession" - the boat is not theirs to sell, nor can they grant me title. Even if my boat has never been and never will be in Seattle, I still pay the Seattle tax rate since my broker's office is there.

Apparently, the 2008 change to WAC 458-20-145 is a setup for taxing Internet transactions, and vessels are excluded... and apparently the law in WAC 458-20-159 is the relevant wording. Still it leaves me confused, and is obviously flawed in principle if not in interpretation. Partly for this reason, and partly because they are weary of audits, brokers in general have been trying to get out of the business of collecting sales tax... which would eliminate the whole issue.

I've been advised to try for a ruling, which I will do, but unless there is an organization behind me the odds are not great.

Incidentally, on the broader question of a way to legally avoid paying sales tax, I've learned that merely having a business around the boat is irrelevant. The only way is bareboat chartering, and the way that works is that the clients who charter the boat pay tax on a weekly rate... as does the owner for any use except in Canada. The gotcha here is that said tax does not go away when the original x% has been met; it continues as long as the boat is in charter. And when it's sold, any left-over tax is due up to the amount based on the depreciated value.

It all makes my head spin. I just want to go sailing, though now it will be with fewer toys.

Steve

[hellosailor]

Steve, in mnay states the broker would normally collect the tax--but is not REQUIRED to do so under all circumstances. Perhaps you could file "will be registered elsewhere" at the time of closing, which perhaps allows the broker to step out of the taxes, and then simply go back to Anacortes and register the boat--and pay the local taxes, properly, at time of registration.

And in the bill of sale, go so far as to say "This sale is deemed to take place entirely in Anacortes...etc...and actual transfer of possession shall take place in Anacortes...etc" so that if you meet some petty bureaucrat who tries to say "But the broker was in" you can say "Sure, but it says here where the transfer was made".

IOW, exploit the legal fictions that you are ALLOWED to exploit, and Caesar's petty minions will usually leave you alone. Especially, if the tax money stays in Anacortes and that's where the minions you deal with will be.

[Microship]

hellosailor - I think you're on target there, especially since I just found a clause in my boilerplate brokerage contract that reads:

The BUYER warrants and/or agrees as follows... to pay all sales and/or use taxes, now or hereafter, imposed as a result of this sale, to indemnify the SELLER and BROKERS against any obligations to pay such taxes, and to furnish proof of such payments, upon request by the BROKERS.

Looks pretty clear to me. Now to figure out how to actually make it work that way!

Thanks,
Steve

[Intentional Drifter]

I don't know if this would be any help, but given your brokerage's contract, it might. Refuse to pay the broker any sales tax, citing the contract language that it is your responsibility. State, in writing, that proof of payment will be sent to the broker within 3 business days. Scurry back to Skagit, go into a DOL office, follow the instructions, here: WA State Licensing: Register a boat

And then send a copy of the completed paperwork to the broker (so he is covered in the event of an audit -- he will appreciate this).

Option 2: If the boat is USCG documented, then you can have the boat in WA waters for up to 60 days, without paying any sales/use tax. If so documented, then you can tell the broker that the boat is exempt from payment of sales/use tax. Then, when back to Skagit (assuming you will be keeping the boat in WA), go register it, as above.

Maybe that will work. Don't get me wrong, I'm not one for avoiding taxes -- they are a necessary thing for keeping our society running -- I would just like to see that taxes are going to where they should be going, and doing what they should be doing. If you live in Skagit, you'll be using Skagit resources and it only makes sense that Skagit should receive the taxes from this.

ID

[Pblais]

That's 8.9% I get to pay instead of 8% - a difference of well over $2,000. I could buy a nice chartplotter for that.

It's best not to get tax advice on the Internet. A chartplotter is not as good as avoiding the fine for screwing up. Not doing this transaction correctly will cost even more.

[Microship]

Hi folks...

First, I agree completely re doing it right - there's no way I would do anything sneaky (for a whole bunch of reasons, not the least of which is that I'm very public with things like these postings, my blog for the ship, a coming book about the boat-buying process, etc). The quest is for a legal and correct solution to a somewhat vexing problem.

It's been quite an education. I just had a talk with a very helpful fellow at the Dept of Revenue who, among other things, addressed one of the issues noted above: the contract language does not override tax law. Further, if there were no broker, the tax would be based on the new moorage location, which is sensible, but under current law the brokerage is considered the seller since it has title-transfer ability (even though, as we all know, it isn't really the seller). It's really convoluted, but there's no sense in trying to fight it as an individual... this has been an ongoing battle in these parts (trade associations included) for some time.

I did receive a suggestion to declare my intent to charter and then change my mind, but that really bothers me for a lot of reasons (mostly because it's not true).

At this point, we're down to two options. I'm buying the boat from an LLC which has been in the charter business, so maybe (and this is from the DOR person, not any half-baked idea of my own) they can collect and disburse the tax. If not, then I bite the bullet, pay the Seattle rate, and move on.

Hey, whatever happens, I'm getting a boat, and someday will have forgotten all this pre-closing angst!

Cheers and thanks for all the thoughts,
Steve

[Ex-Calif]

I always admire people that have the time, patience and energy to work this stuff. I can't imagine how much money I have lost over the years by my inability to "work the details."

Not to get into a rant mode but it is only after living outside the US that you can look in and see how truly screwed up the revenue system is.

Here in Singapore no used good are taxed. New goods have a "flat" goods tax. My income tax was basically 2 pages and basically flat tax and around 10%. Anyone can fill it out. And the government runs a huge surplus.

Buying my boat and registering it cost S$30. Because the biennial inpection had 18 more months to run i dodn't even have to pay the inspection fee. just documentation.

[Microship]

*heavy envious sigh*

That sounds so insanely sensible, Dan. Two guys could sell the same boat back and forth here, and over time go broke. The amount I've paid in sales tax on this and the previous boat (a year ago) is more than I've made during most years of my life.

Looking forward to absolute mobility; may seeya someday....

Steve

[MJH]

I researched this subject in detail before purchasing my boat. If you buy it in the state of WA you pay WA tax, and when you register the boat (no matter where purchased) you'll pay the differeence. So to avoid the tax buy out of state, i.e. Oregon or British Columbia, the latter then includes customs of course. Buying in Oregon along the Columbia River does NOT exclude you from WA tax due to an agreement between WA and OR. However, if you "take posession" of the boat along the Pacific coast of Oregon, i.e. Newport or Coos Bay, and register the boat in OR you avoid the WA tax (OR has no sales tax). However, as a WA resident you can NEVER (legally) bring the boat into WA waters without paying the tax and that includes repair work.

So, as a WA resident, it comes down to how much tax you will be paying in WA versus how much it will cost you to keep it in OR and the inconvience of having to travel to OR to use your boat. If you are planning a world cruise it might be worth it to take possession along the Pacific coast of OR for the "right boat", register it in OR (minimal expense), depart from there, and finally returning there to sell the boat.

[Microship]

HI, and thanks for the comments. Doing the tax dance in other states is not really an option, alas; I just bit the bullet. The only question now is whether the DOR will rule that the seller (an LLC) can collect the tax instead of the broker... a difference of .9%.

In any case, it's a done deal; the boat is now in my new slip! Delivery was this past Saturday, and it's just now sinking in (oh, wait... I shouldn't use that word!).

Cheers,
Steve