Yacht tax trouble could be dead ahead

Alicia Robinson

Businesspeople in the boating industry are waiting to see if the

state legislature will close a sales-tax loophole, an action they

think could sink boat sales statewide.

A bill from Van Nuys Assemblyman Lloyd Levine being mulled in the

legislature would end a provision that allows people to avoid the

sales tax on boats, recreational vehicles and airplanes by buying

them offshore or taking them out of state for the first 90 days after

the purchase. Levine’s proposal is a rider in the contentious budget

bill, which could come to a vote later this week.

Some boat brokers and outfitters worry that the bill will strangle

their business like a tight clove hitch by sending prospective boat

buyers out of state.

“California is the only one that’s going to suffer here because

we’re the only one that has a silly law like this,” said J.R. Means,

president of Bayport Yachts, which has been in Newport Beach for 17

years.

Levine said he proposed the bill as a way to fill the state’s

budget gap without raising taxes. He projects the state would get

about $55 million a year if the tax loophole is closed.

“It’s a fairness issue,” Levine said. “To me it’s a matter of the

wealthiest Californians avoiding something because they can, not

because they should, and my attitude is: shame on you.”

Although the option of taking a boat out of state to avoid the

sales tax is legally available to anyone, not everyone can afford to

spend 90 days in Mexico or hire a crew to take a boat away and later

deliver it, Levine said.

“Legally, you have this option, but practically, you don’t,” he

said. “If you can afford a million-dollar yacht, you can certainly

afford the $80,000 [in sales tax].”

Locals in the business of boat sales would like to drop an anchor

on the bill. They fear the end of the loophole would drive people to

other states to buy boats, so California would lose boat sales as

well as the money people save on sales tax, which they often pour

back into outfitting their new boats.

“A lot of business is generated locally off that sale to our local

economy,” said Mike Whitehead, a Daily Pilot boating columnist and

boat captain who handles offshore deliveries. “You lose a high-end

ticket item out of California like that, it’s going to hurt, not just

with the boat but the ancillary services.”

The boating industry generates about $17 billion a year in

California, state Department of Boating and Waterways spokeswoman

Megan Standard said.

Means and Whitehead drew parallels between Levine’s proposal and a

1991 luxury tax of 10% that crushed boating businesses. Locally, boat

sales dropped about 80% and half of new boat dealers folded, Means

said.

“Right now, if they take this offshore delivery option away, it

will dramatically affect the amount of boats that are sold in

California,” Means said. “We’re all worried.”

But others in the boating industry said the legislation would be

no reason to cry mayday.

“I think it’s more of an aggravation than anything else,” said

Jesse Salem, who owns Newport Harbor Shipyard on the Lido Peninsula.

“I don’t think that at least my customers are going to stop boating

or stop spending money on their boats because they have to pay sales

tax.”

Only a small percentage of boaters take advantage of the loophole,

so the boating community isn’t exactly up in arms about its possible

discontinuance, said Bill Long, spokesman for the 420-member Bahia

Corinthian Yacht Club in Corona del Mar.

“We’re all aware of it,” he said. “You’re only concerned if you’re

going to buy a boat.”

Ironically, the legislative proposal’s immediate effect has been

to boost business for boat dealers and outfitters because people want

to buy before the law changes.

Means said his walk-in traffic and inquiries have increased

substantially because of the buzz about the loophole closing, and he

expects to be even busier if the bill is passed and an effective

deadline is set.

“In my case, it may even be better for business,” Salem said. “I

think it would be a sales tool for a yacht broker to close the deal.”

* ALICIA ROBINSON covers business, politics and the environment.

She may be reached at (949) 764-4330 or by e-mail at

[email protected].