March012021
Before You Hoist Sail, Check Out the Sales and Use Tax Implications
SALT Chat
Sarah Kim, Principal, Citrin Cooperman Advisors LLC / Berdon Advisors LLC
03.01.21 | SALT Chat
Now may seem like the perfect time to head to the open waters and experience the feeling of fresh air on your face and wind in your hair. But before you pull the trigger on purchasing a new boat, you may want to take a quick refresher on the fundamentals of sailing, including tying the essential knots, navigating through hazardous waters, and—perhaps most importantly in our view—the sales and use tax implications of purchasing a boat.
Generally, sales tax is imposed at the time of the purchase. However, many states, such as New York, Connecticut, and Florida, have provided a sales tax exemption for the purchase of boats and other vessels by a nonresident for use in a different state. To qualify for such exemption, the purchaser must simply remove the vessel from the state of purchase within a specified time period (e.g., 10 days in Florida). As an example, if Paul, a New York resident, purchases a boat from a dealer in Florida and transports the boat out of Florida within 10 days of such purchase, then Paul does not have to pay the Florida sales tax (assuming he has submitted all necessary documentation).
But, that’s not the end of the story. As you may recall from a previous blog entry, a use tax is imposed on the user of taxable goods and services on which no sales tax was collected at the time of purchase. Going back to the example above, although Paul did not pay sales tax in Florida at the time of the purchase, as a law-abiding citizen, he will have to eventually pay use tax to another state, depending on where he plans to store, dock, or use the boat. But how much he ultimately pays may depend on the course of the boat.
Generally, states exempt nonresidents from paying the use tax on a boat when her use of the vessel within the state does not exceed a certain number of days (e.g., 60 days in Connecticut, 30 days in Maine). In addition, some states also exempt use tax if your boat is docked in or stored in the state. For example, Rhode Island has a use tax exemption for boats that are brought into the state exclusively for winter storage purposes from October through April and Connecticut has an exemption for boats that are docked in the state for no more than 60 days.
The sales and use tax rules applicable to boats vary from state to state. Speak to your Berdon advisor to help you chart a course to achieve full tax compliance while minimizing your sales and use tax liability.
Questions? I can be reached at 646.346.6467 | skim@berdon.com.
Sarah S. Kim is a Senior Tax Manager in Berdon’s State and Local Tax Group with nearly 10 years of professional experience. Sarah advises Fortune 500 and middle market businesses across an array of industries. She has experience with various types of taxes, including corporate income and franchise tax, sales and use tax, personal income tax, unincorporated business tax, commercial rent tax, and real estate transfer tax.