It seems like most states these days are crying poor, claiming that lower revenues mean that taxes must be raised and cuts may be had. Apparently that is not the case in Texas.
One day after I saw this CNN report about the $60 million high school football stadium being built outside of Texas (yes, it’s a public high school), I read that Texas is considering a sales tax exemption for yacht owners. A committee in the House, led by Rep. John Davis (R-Houston), passed a measure that would put a cap on the maximum state sales tax that you could charge for the purchase of a yacht; the measure would benefit those yacht owners that spend more than $250,000 on such a boat.
Rep. Davis claims the bill is necessary because Florida passed a similar law last year. In fact, Florida Governor Charlie Crist signed the oddly-named Jobs for Florida Bill in May of last year which capped the amount of sales tax you could charge on boats at $18,000. Florida’s rationale? They had to compete with other states who have granted tax breaks.
Tax breaks for boat owners in other states? Which ones? As it turns out, as of last year, South Carolina capped the sales tax payable on the purchase of a boat at $300. North Carolina limits the amount of sales tax payable to $1,500. Both of those states are running at a deficit this year and are considering other tax increases to plug the hole.
Of these states, three of them are on the leader board for top boat sales in the country according to DiscoverBoating.com (report downloads as a pdf): Florida, Texas and North Carolina. California and New York round out the top five. South Carolina isn’t among the top ten.
Before you fire off a comment about how I don’t understand how this all works, believe me when I say that I do. I grew up in coastal North Carolina. I know how important the boating industry is to coastal areas. And I agree that it makes sense to take steps to preserve and protect important industries where possible.
I’ve also read the reports and I’ve seen the statistics about how states believe that not offering these breaks will encourage wealthy residents to look elsewhere, including offshore havens for their purchases. It’s funny how it’s come to that. It would appear that states live in constant fear that wealthy residents – and companies – will exit en masse without a steady supply of tax breaks. And we wonder why our tax system is so convoluted. Here a break, there a break…
That said, all of this movement to spend public dollars and limit tax spending in the Lone Star state gave me the impression that Texas revenue coffers were flush enough to offer these perks. Only that’s not the case. The state is actually facing a $23 billion deficit. Compare that to the total of retail expenditures in the state for the purchase of boats, trailers and accessories at $906 million – and no, I’m not including related industries in that total. Curious, huh?
I get that tax breaks and tax caps have their place in the tax system as it currently operates. In a tough economy, you have to make thoughtful decisions about how to boost revenues and that might include increases for some and cuts for others. Choosing who to placate and who to irritate is a fine line. So, what’s your take? Is this a good move for Texas? Would you want similar breaks in your own state?
I live in Texas and I have a problem with this tax break. We are facing a huge deficit in the state coffers and the solution seems to be to cut education and medicare benefits. Some school districts are already laying off teachers and increasing class size but the football god is alive and well. A large number of nursing home are anticipating closure.the Tea party people seem to think that corporate America will solve all problems by privatizing. As long as corporate greed is in control, the American public will suffer by reducing the middle class (who pays most of the taxes) and increasing the poor (who pays little or no taxes) and we will wind up with a two class society, very wealthy and very poor and the basis established by the founding fathers will disappear.
Hey Taxgirl:
The problem here is not with any particular state, several states either cap or exempt motor vessels from sales tax. The states are not enacting such legislation because of the special interests of boat builders or “wealthy” yacht buyers. Rather the states are trying to claw back some amount of tax that they have lost to crafty but expensive tax planning. A vessel owner can take title to his boat in the name of a foreign corporation, register the vessel in that country and fly their flag.
When the vessel enters the US, it is constitutionally immune from sales tax as long as the foreign flagged vessel has obtained a US Customs cruising permit to be in US waters. Several states, including Florida have tried to challenge such arrangements however the constitution protects foreign dignitaries and foreign vessels from US taxation.
Being an attorney you can appreciate the irony here, the legal fees to set up the foreign corporation and register the vessel and obtain permits is about $20,000. The intent of limiting the tax to $15 or $18k as Florida and Texas does was to put the attorneys out of this business and claw back some amount of tax. Do not believe what you here about tax breaks for the wealthy, this was a divisive move to shut down such practice an increase their tax revenues.
I live in Texas and I have a problem with this tax break. We are facing a huge deficit in the state coffers and the solution seems to be to cut education and medicare benefits. Some school districts are already laying off teachers and increasing class size but the football god is alive and well.
Of course the poor billionaires need more money. Its not enough that they took our social security surplus in the name of a tax reduction for themselves. What do we need social security and medicare for anyway? We all need to help them keep up their lifestyles! Why do we even question this?
Hi Taxgirl,
Here’s the reality of the boat taxation. If I buy a boat in Florida for $100,000 and I keep it there for 6 months, I pay a sales tax of 6% or $6,000. Then, a year later my job moves me to GA or SC or NC. These states have personal property taxes on boats. I then have to pay about $2,000 per year to keep my boat there. I have to pay this even though the marina in which my boat is kept is also paying property tax. This is like an apartment renter having to pay tax on their apartment even though the landlord is paying tax. So let’s say I live in one of these states for 3 years and then my job moves me to NJ. Well, NJ has a sales and use tax of 7%. Even though I paid FL for the tax when I purchased the boat, I need to cough up another 1% or $1,000 for NJ on the 181st day I am there. Now, my job moves me to CA. You guessed it, I have to pay again. CA sales and use tax is 8.25% so I need to cough up another $1250. In the 5 years I have owned my boat I have paid a tax rate of 14.25% or $14,250.
It’s about time someone gave boater a break.
The current taxation on boat is crazy. I can buy an RV in Texas and freely move it around the country with no extra taxes. Why can’t I do the same on a boat?
Contrary to popular believe, most boat owners are not wealthy. 99% are simply people with hobbies. I agree there are some extremely wealthy, all right, filthy sinking wealthy people that big boats. Let think out this for a second. Ask yourself this question. If you purchased a boat for $10 million, would you put it in Texas and pay $625,000 in sales and use tax or would keep the boat on an island that offers a tax fee location and fly back and forth to the boat. You could by 5 years or plane tickets and still come out ahead. Now let’s add in the factor that the states are flippant on their tax policies and you could be hit with any number of taxes down the road. A simple 1% change could cost you $100,000. I guessing no matter how much you want to mess with Texas, you boat would not be there. Too bad, someone in Texas needs a job and that job could be a chef on this boat (paying about $75,000 per year) or a Captain making over a $100,000 per year. But the job is where the boat is – not Texas.
Any state that offers a haven for boaters benefits from the money that is spent there by boaters. The Ft. Lauderdale and Miami are great examples of this. The areas depend heavily on the mega-yachts and an entire economy is built around services for them. The small business environment is full of services catering to the industry and it thieving en a down economy. Taxing the industry would kill it. Proof is the luxury tax that was added to US built boats in the 1980’s. The New England area was full of luxury boat builders. Some of the best boats in the world were once made by master craftsmen in New England. Not anymore. When the 10% tax was imposed, foreign boat builders quickly had a pricing advantage and captured the market. All but one US builder went out of business before the law was repealed.
Darn right boats need a break, unless you don’t want the industry in your state.
Eliminating “Tax Breaks for Rich Yacht Owners” sounds good but does not hold water. Sound tax policy is not as salacious as a good political sound bite, but makes more cents!
After reading your post I felt compelled to share Florida’s boat sales tax success story.
Prior to July 1, 2010 all boats sold in Florida were subject to a 6% sales tax since that date Florida capped the sales tax at $18,000 per transaction.
Florida’s Revenue Estimating Committee (similar to Washington’s CBO) said the measure would to “cost” taxpayers $1.5 million in lost revenue the first year alone.
Instead of the projected loss Florida collected nearly 10 times more tax dollars! This helped Florida’s $17.0 Billion dollar recreational marine industry and its 202,000 jobs. A Win – Win Tax policy that was touted as “Tax Break for the Rich Yacht Owners” turned out to be a huge windfall for Florida’s tax coffers.
We should learn from successes like Florida’s sales tax cap & mistakes, like the 1990 luxury tax designed to soak the rich that backfired devastating the U.S. marine industry eliminating tens of thousands of U.S. jobs while raising only a few tenths of a million dollars in its first year. Adding salt to the wound the government paid unemployment benefits for the jobs lost.