How to Avoid Sales Tax on a Boat Purchase
Boaters in the U.S. who have heard of states without sales tax, such as Delaware or Oregon, are wondering if they could abolish the sales tax on the purchase of a boat if they simply bought a boat there. The answer is yes – but only if they use their boat in these states. The legal way to avoid sales tax is to buy the boat in a state without sales tax, keep the boat in a state that does not have sales or use taxes on the boats (Oregon, for example), and, if you are sailing in waters outside your home state, strictly adhere to the state`s residency deadlines. This strategy is simple and straightforward in a way, but like almost every aspect of VAT avoidance with boats, it is complicated. Ultimately, however, if you buy a boat in a state without sales tax, but you keep the boat in a state that does, the state where you own the boat will charge you the sales tax you tried to avoid. Instead, you can call it a “use tax,” but the amount taxed is equal to the sales tax you thought you avoided. The time limit varies, but for smaller boats it is 10 days, which can only be extended once for an additional 10 days. Larger vessels may extend the time limit to six months, but fees and conditions apply; These are explained on the Florida Department of Revenue website under “Sales and Use Tax on Boats.” Anyone who buys a boat from a private party in Florida must immediately pay the sales tax due. In general, boaters must pay sales tax in the state where they use the boat, not where it was purchased.
However, according to the Boat Owners Association of The United States (BoatUS), there is more to the issue of boat sales tax: one of the most common questions that shipping lawyers receive from potential clients is how to avoid sales tax on a boat. Unfortunately, each jurisdiction has different regulations that can always change. Often, there is no reasonable way to avoid paying taxes on a boat, especially if you plan to buy and use a boat in a particular state that has sales tax. Nevertheless, there are circumstances in which legal avoidance of sales and use taxes is a real possibility. Some states — Montana in particular — have small industries that help you avoid sales taxes on your boat. The locations are similar, and many contain erroneous information that leads you to believe that you can buy the boat in Montana or another non-tax state and then take it to your home state without paying sales tax. That may be technically true, but you pay the same amount of tax that goes under a different name — a user tax. • You`ll always be on the hook: If it seems difficult to avoid paying sales tax on a boat purchase, it is. • Move a boat from one state without boat sales tax: If a boat owner decides to move their boat from one of the five states without general sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon) to another state, if the ship is registered in the new state, this triggers the sales tax due. There can be several ways to minimize or avoid sales and use taxes when buying a boat. Yes, the tax authorities are coming.
This year, the U.S. Department of the Treasury and the Internal Revenue Service extended the federal personal income tax reporting deadline for the 2020 tax year from April 15, 2021 to May 17, 2021, to help taxpayers cope with the unusual circumstances surrounding the COVID-19 pandemic. This only gives you a few days to file your tax returns, so here we`re going to cover some of the things you want to make sure you know. The good news? Many boat taxes help pay for things boaters want and love, such as boat installations, on-water services, and waterway maintenance. The bad news? We have to pay taxes. While no federal tax is levied on the purchase of a boat, there are state and local taxes on varieties that are as abundant as the perennials that appear in spring gardens. You`ll need to check with your own state offices — both where to buy the boat and where to store and navigate it — to determine what you might owe, but overall, you`ll come across three types of property taxes, regardless of the type of boat you`re buying. The good news is that most tax authorities grant a credit for sales tax paid to other states as long as the owner can provide proof of payment for the vessel in the form of a receipt or final statement signed by a merchant or broker. For example, in Florida, non-residents who purchase a boat from a dealership must sign an affidavit stating that they will leave state waters. Small boats have 10 days to sail; the largest boats have 90 days.
And if a boat purchased in Florida is not registered in one of the states without sales tax, owners will have to pay sales tax at their own state tax rate if the ship is registered in their home state. • Know what is eligible: Depending on the state, certain items, such as . B a boat trailer, may or may not be included in the purchase price and eligible for the reduced rate of the boat sales tax. When it comes to the United States, the state where you keep your boat is the state that wants its sales tax. It can also be called a use tax, since you use the waters of that state. No matter where you are documented or registered, this is where your boat is located. Since July 2010, Florida has limited sales tax on a vessel to $18,000. That is, regardless of the purchase price of the yacht, you will not pay more than $18,000 in taxes. If you plan to keep your boat in Florida for this kind of money, it just doesn`t make sense to register your boat off the coast. In New York, you would pay taxes on the first $230,000 of the boat`s purchase price.
North Carolina`s boat sales tax is 3% and is capped at $1,500! In Maryland, the maximum sales tax is $15,000, while in Virginia, the sales tax on boats is 2% not too far away and is capped at a meagre $2,000. This is a basic overview when it comes to boat sales and use taxes, and there are many conjectures, exceptions, clauses, and penalties that this section simply cannot cover. We regularly advise our clients on how best to manage the taxes associated with their boat, and sometimes trying to avoid sales and use taxes is simply not practical. In other situations, avoiding sales and use taxes is not only possible, but can also save a lot of money for an owner. Regardless of this, every boat buyer should be informed of the relevant rules and regulations. Offshore closures are usually done to avoid Florida tax stamps for a boat mortgage. To get there, you have to walk three miles of coastline in international waters. Then, sign your loan documents in front of a loan officer. Next, we take a picture of today`s newspaper and GPS coordinates.
Once we have done that, the captain signs an acknowledgment of what happened. It also avoids sales tax in Florida, as the transaction took place outside of Florida waters. But remember, if you intend to keep your boat in Florida, you can`t bypass Uncle Sam. Other states have different regulations that also make it difficult to evade the user tax. In California, you will have to pay the use tax in most cases if you bring the boat into California waters within one year of purchase or at a time when you are a California resident and only move the boat to avoid the tax. Although Florida limits total taxes on income and use on the purchase of a single boat to $18,000, California has no similar restriction. A $1 million boat will typically result in nearly $100,000 in sales or use taxes in California. Probably the easiest way to avoid sales taxes on a boat purchase is to buy the boat in a state that doesn`t have sales tax. These include Montana, New Hampshire, Delaware and Oregon.
Alaska also doesn`t have a state sales tax, but municipal sales taxes are on average up just under 2 percent. Since each state treats this deferred sales tax differently, you should carefully review your state`s laws. Florida is an example of the difficulty of continuing to avoid sales tax on a boat imported from another state. Florida requires anyone who purchases a boat from a florida-registered dealer to pay sales tax unless they sign an affidavit (Form GT-500003) that agrees to leave Florida waters within a relatively short period of time. There are several ways for a buyer to avoid sales tax. Of course, the easiest method is to buy a boat in a tax-free state like Delaware or Rhode Island. But let`s face it, understanding boat taxes by state is a lot to ask for when buying a boat. Although it may be useful that the buyer also plans to store and use the boat in this condition. An offshore closure is another option for buyers who want to avoid VAT, especially if they are boats of significant value, or for owners who plan to travel constantly or register the boat in a foreign location. This type of transaction is a bit more complex and requires the parties to close offshore outside state waters. If possible, we often recommend an offshore contract via a referral affidavit, as this eliminates the need to submit documents and keeps the buyer off the state`s radar.
• Do some States have it better? While they`re not as cheap as the zero sales tax state, some states are more boat-friendly than others when it comes to sales taxes. Are you ready to file your tax returns by April 15? Don`t forget to include your boat. In some jurisdictions, there may be an escape or suppression clause in the laws of a state. These clauses often require the buyer to provide an affidavit of return: the non-resident buyer must confirm that the vessel will leave the state within a certain period of time. A buyer may also be required to provide proof of departure (fuel or dock receipts) and registration in another jurisdiction. They may also be prohibited from returning to the boat for a period of time. The process is relatively simple, but it is imperative that the guidelines are followed. The tax administration of a state will have little sympathy for those who do not respect its rules.
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