Trying to navigate what the best options are, as they relate to taxes and registering your new yacht can be a difficult feat if you are new to boating. Uncle Sam’s rules vary state by state and we are here to shed a little light.
This article is designed to provide prospective yacht owners with an overview of state sales tax. It should not be considered guidance. As in all things that are related to taxes, we recommended that you consult a tax professional for advice.
Registering by state
Regarding the US, the state you keep your boat in is the state that is going to want their sales tax. It can also be called a use tax, taking into consideration you are using the waters of that state. It does not matter where you are documented or registered, it is where your boat resides. Since July of 2010, Florida caps sales tax on a vessel at $18,000. Meaning, no matter the purchase price of the yacht, you will not pay more than $18,000 in taxes. If you are planning to keep your boat in Florida, for that kind of money, it simply doesn’t make sense to register your boat offshore. 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 capped at $1,500! In Maryland, the maximum out of pocket in sales tax is $15,000, while not too far away in Virginia the boat sales tax is 2% and capped at a measly $2,000.
Always a different set of rules
As mentioned before, the state in which your boat is used is where you will have to pay sales tax. If you were to purchase a boat in different state, there would be a limit on how long that boat can remain in that state before you must pay sales tax. Each state has a limit of how long you can stay before they require state sales tax payment, and each state has a different requirement. Florida is six months when you file an exemption and pay a fee at purchase, but then you cannot come back for six months. That is why it is also called a use tax rather than a state sales tax. For example, you did not buy your boat in New York, but if you stay in New York they will require you to pay their sales tax / use tax, same amount, minus any state sales tax you paid in another state.
Unless you plan to keep your boat in Alaska, Delaware, Montana, New Hampshire, or Oregon, the five states without state sales tax, the bottom line is if you you intend to purchase a catamaran and keep it in the US, you are going to have to pay that state’s sales tax, it’s unavoidable.
Why do people do offshore closings?
Offshore closings are usually done to avoid Florida tax stamps on a boat mortgage. In order to achieve this you must go three miles of shore into international waters. Then you sign your loan documents in front of a loan officer. Then we will take a photo of today’s paper and the GPS coordinates. Once we’ve done that, the captain signs an acknowledgement of what has transpired. This will also avoid Florida sales tax because the transaction took place out of Florida waters. But remember, if you intend to keep your boat in Florida you can’t get around Uncle Sam.
Foreign Flag Registry
If you are a foreign flagged yacht you will need to obtain a cruising permit and you will have to clear in and out. This is not necessary if the vessel is US flagged. If you have a foreign flagged vessel in the US, you may hire foreign staff who possess specific types of visas to work on your yacht. If it is a US flagged yacht, you may hire U.S. citizens or people with U.S. work permits only.
At the end of the day it call comes down to what your cruising plan is. Once you have established your first few months up to a year of ownership and consulted a tax professional, the decision on state registration and sales tax should be much more clear.
