Boat Tax New Jersey – 2016 Update

Boat Tax New Jersey 2016

Until recently, New Jersey had been among the toughest states in the Mid-Atlantic as far as boat tax.  One client kept his boat in Delaware, but took a weekend trip to New Jersey with his local yacht club.  While there, his information was reported to tax authorities — and suddenly his weekend in the state came with a five figure tax bill.  He was on the hook because New Jersey took the position that if a resident brought a boat in even for a single day, that boat was subject to the use tax.

The State, however, has recently passed three changes to the tax.  These taxes primarily impact more expensive boats and boats that are not used in exclusively in New Jersey.  First and foremost, a cap of $20,000 has been placed on the total amount of tax that can be collected and taxes on boats have been cut to 3.5 percent: “Notwithstanding the provisions of P.L.1966, c. 30 (C.54:32B-1 et seq.) to the contrary, receipts from the sale of a boat or other vessel are exempt to the extent of 50 percent of the tax imposed under section 3 of the “Sales and Use Tax Act,” P.L.1966, c. 30 (C.54:32B-3) and the maximum amount of tax imposed and collected on the sale or use of a boat or other vessel shall not exceed $20,000.” N.J. Stat. Ann. § 54:32B-4.2. 

The second important change has been to create a window of time in which a resident can use their boat in New Jersey without paying tax for the use.  Per the new rules, a resident can use the boat for not more than 30 days in a calendar year without tax so long as it is properly registered and numbered in another state and is not being used for business in New Jersey.

“Notwithstanding the provisions of P.L.1966, c. 30 (C.54:32B-1 et seq.) to the contrary, the use within this State of a boat or other vessel for temporary periods, not totaling more than 30 calendar days in a calendar year, shall not be subject to the compensating use tax imposed by section 6 of P.L.1966, c. 30 (C.54:32B-6), provided that: (1) the boat or other vessel is legally operated by the resident purchaser and meets all current requirements pursuant to applicable federal law or pursuant to a federally-approved numbering system for boats and vessels adopted by another state, and (2) the resident purchaser is not engaged in or carrying on in this State any employment, trade, business, or profession in which the boat or vessel will be used in this State.” N.J. Stat. Ann. § 54:32B-6.1 (West)

In short, if you have received an assessment from the State of New Jersey, then there are two immediate questions to ask.  Is the boat owned by a New Jersey resident?  Of if it is a corporation, are the beneficial owners New Jersey residents?  Second, if not, is the boat privately owned and not being used in a commerce or trade?  If there is no resident and the boat is privately used, use tax should not be imposed for a temporary use of New Jersey waters.

Fair winds.

Dirk Schwenk