US Tax on Foreigners?

[goeasy123]

If a UK citizen goes to the US to go around the Great Loop, which might take a few years, at what point and under what conditions do they become subject to US tax?

[PippaB]

There must be dozens of threads on this topic already, but here goes:

A UK citizen is immediately subject to paying the local taxes as soon as they arrive. A UK-flagged boat may never be subject to taxation, but there are soooo many details.

Firstly, are you talking import duties, or sales and use taxes, or personal property taxes? A cruising permit allows you to avoid the federal import duties for a year. Technically you have to exit the US and return more than 15 days after expiration to renew your cruising permit for another year (and another and another). Canada and the Bahamas are useful places to exit. Some people have found this requirement not enforced, others have. YMMV. If for some reason you were to have to pay import duties they are generally 1.5% of the value of the vessel plus a few small fees. But there are any number of people here on CF who have had foreign-flagged vessels in the US for years without importing them and paying duty.

The US has 50 states, and each of those has some number of counties. For the Great Loop you will be passing through somewhere around half of those states. Each state (and even each county) has different tax rules. Visitors (from a different state or from a different nation) can generally avoid the state taxes for a period of 60 to 90 days pretty easily, just by not staying within that state for longer than the visitor's exemption period. Each state is different, so you have to learn what each state requires. Foreign-flagged vessels may be able to avoid the sales and use taxes for longer, but again, every state is different.

There are games to be played. Some states have no sales or use taxes, these are the easiest for long term storage. Others have exemptions for storage or repairs while on the hard but not if stored in the water.

Come, visit, enjoy. Do part of the Loop. If you find you are getting to a point where you will be spending a couple of months in one location then investigate the nearest 3 or 4 states. Figure out which one is the right place for your plans.

Here's an article, somewhat dated, that should give you the flavor of the different tax regimes along the east coast.

[goeasy123]

Originally Posted by PippaB

There must be dozens of threads on this topic already, but here goes:

A UK citizen is immediately subject to paying the local taxes as soon as they arrive. A UK-flagged boat may never be subject to taxation, but there are soooo many details.

Firstly, are you talking import duties, or sales and use taxes, or personal property taxes? A cruising permit allows you to avoid the federal import duties for a year. Technically you have to exit the US and return more than 15 days after expiration to renew your cruising permit for another year (and another and another). Canada and the Bahamas are useful places to exit. Some people have found this requirement not enforced, others have. YMMV. If for some reason you were to have to pay import duties they are generally 1.5% of the value of the vessel plus a few small fees. But there are any number of people here on CF who have had foreign-flagged vessels in the US for years without importing them and paying duty.

The US has 50 states, and each of those has some number of counties. For the Great Loop you will be passing through somewhere around half of those states. Each state (and even each county) has different tax rules. Visitors (from a different state or from a different nation) can generally avoid the state taxes for a period of 60 to 90 days pretty easily, just by not staying within that state for longer than the visitor's exemption period. Each state is different, so you have to learn what each state requires. Foreign-flagged vessels may be able to avoid the sales and use taxes for longer, but again, every state is different.

There are games to be played. Some states have no sales or use taxes, these are the easiest for long term storage. Others have exemptions for storage or repairs while on the hard but not if stored in the water.

Come, visit, enjoy. Do part of the Loop. If you find you are getting to a point where you will be spending a couple of months in one location then investigate the nearest 3 or 4 states. Figure out which one is the right place for your plans.

Here's an article, somewhat dated, that should give you the flavor of the different tax regimes along the east coast.

Sorry. Should have been more precise. I'm refering to personal taxation such as income and capital gains taxes.

[Shrew]

Originally Posted by goeasy123

Sorry. Should have been more precise. I'm refering to personal taxation such as income and capital gains taxes.

1) Are you a resident of the state?

2) Is your income earned from work performed IN that state?

3) Is your income earned from sources IN that state?

If the answer to 1-3 is NO, then you are highly unlikely to be liable for taxes in that state.

[PippaB]

Presuming it is not your intent to apply for permanent residency (which puts you on the fast track to paying taxes):

You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

31 days during the current year, and

183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:

All the days you were present in the current year, and
1/3 of the days you were present in the first year before the current year, and
1/6 of the days you were present in the second year before the current year.

Example:
You were physically present in the U.S. on 120 days in each of the years 2021, 2022 and 2023. To determine if you meet the substantial presence test for 2023, count the full 120 days of presence in 2023, 40 days in 2022 (1/3 of 120), and 20 days in 2021 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2023.

https://www.irs.gov/individuals/inte...-presence-test

In addition, there is a tax treaty between the US and UK, so exactly what type of income becomes relevant, i.e. interest and pensions get a 0% tax rate for UK citizens who are tax resident in the US, but dividends are taxed.

https://www.irs.gov/individuals/inte...-treaty-tables

[Sun and Moon]

Originally Posted by goeasy123

Sorry. Should have been more precise. I'm refering to personal taxation such as income and capital gains taxes.

This question is probably way too complicated to be answered on a forum, and so much depends on your situation. Are you planning on working while in the US? If so, you are going to need a visa which allows it. My friend coming to visit for 2 months from Belgium (visa free Esta program) got questioned extensively by the border guard at JFK as to how she could possibly be doing this and was she planning on working or working remotely while in the US. Indignantly she replied "Ma'am, I am 53 years old. If I haven't saved enough in all these years to take two months vacation then I would consider myself a complete failure". It was a high-stakes reply that could have gotten her sent home, but instead got her passport stamped. Since then she has entered several times through Dulles without being asked anything.

[Sun and Moon]

If you want a little light reading, here is the US-UK tax treaty agreement that will tell you everything you need to know.

https://www.irs.gov/businesses/inter...eaty-documents

https://home.treasury.gov/system/fil...-7-24-2001.pdf