Can Boaters Avoid Paying Sales Tax?
Published on April 29th, 2019
Boaters in the USA who’ve heard about no-sales-tax states, such as Delaware or Oregon, wonder if they could eliminate sales tax on a boat purchase if they simply buy a boat there. The answer is yes – but only if they use their boat in those states.
Generally, boaters have to pay the sales tax in the state they use the boat, not where it’s purchased. However, there’s more to the boat sales tax issue, according to Boat Owners Association of The United States (BoatUS):
• Buying a boat out of state: Boaters may certainly buy a boat in a state that does not have a sales tax or with lower sales tax than their home state. However, most out-of-state (nonresident) boat purchases require the buyer to remove the vessel after the purchase.
For example, in Florida, nonresidents who buy a boat from a dealer there must sign an affidavit stating that they’ll leave state waters. Small boats have 10 days to leave; larger boats have 90 days. And unless a boat purchased in Florida will be registered in one of the no-sales-tax states, owners will have to pay sales tax at their own state’s tax rate when the vessel is registered in their home state.
• Moving a boat out of a no-boat-sales-tax state: If a boat owner decides to move his or her boat from one of the five states without a general sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) to any other state, when the vessel is registered in the new state, it will trigger the sales tax due.
• Thinking of cheating? You may want to think twice. Boat buyers should know that many state tax agencies aggressively look for boaters who haven’t paid sales tax in their state and may try to collect the equivalent use tax on boats if they are used there anywhere from 30 to 180 days.
California, for example, may ask for the tax once a boat owner becomes a new resident – even if the boat hasn’t been registered there. The Golden State and others are known to search ownership records and even inspect marinas for out-of-state boats.
When a boater registers a boat for the first time, states typically ask for proof of sales tax payment. If it hasn’t been paid elsewhere, it will likely need to be paid at the time of registration. Boaters should keep in mind that the collection of sales or use tax never goes away – states can collect the tax even years later when the boat is brought into the state.
• Do some states have it better? Though not as inexpensive as zero-sales-tax state, some states are more boater-friendly than others when it comes to sales taxes.
Rhode Island, for example, has no sales tax on boats. Florida caps the amount of boat sales tax at $18,000 no matter the purchase price. North Carolina’s boat sales tax is 3% and capped at $1,500; Alabama’s is 2% but has no cap. Connecticut cut its sales tax from 6.35% to 2.99% on boats, boat trailers, boat motors, and marine-dyed diesel fuel. New Jersey halved its boat sales tax from 7% to 3.5% and capped it at $20,000. New Yorkers pay sales tax on only the first $230,000 of a boat’s purchase price. Maryland caps its boat sales tax at $15,000, while in neighboring Virginia the boat sales tax is 2% and capped at $2,000.
• Know what qualifies: Depending on the state, some items, such as a boat trailer, may or may not be included in the purchase price and qualify for the discounted boat sales tax rate.
The bottom line for boaters is that they probably can’t avoid paying sales tax if they plan to purchase a boat and keep it in a state that has a sales tax. Additionally, some states have title taxes or local sales taxes tacked on depending on the municipality.
And after the purchase, annual excise, use, or property taxes assessed on the value of the boat may also come into play. As in all things tax-related, BoatUS recommends that boaters consult a tax professional for advice.