Category Archives: Tax Articles

Florida Boat Tax – Major July 1, 2010 Change

Because Florida is such an important destination for East Coast boaters, we have discussed its taxation scheme several times in the past.  To recap, Florida has both a sales and a use tax for boats set at 6% of the purchase price or fair market value.  The use tax can be applied under a number of different situations.  First and foremost, when you arrive in Florida the Department of Revenue will look at your vessel at the actual time of purchase.  As long as you meet the following three criteria you will NOT owe the 6% use tax at the time of your arrival:

1.    You have owned your vessel for 6 months or longer.

2.    The boat is not owned by a Florida resident or the boat does not belong to a corporation for the use of a corporate officer or director who is a Florida resident or who owns, controls, or manages a dwelling in Florida.

3.    You have shown no intent to use your vessel in Florida at or before the time of purchase.

4.    Your vessel has been used 6 months or longer within the taxing jurisdiction of another state, U.S. territory, or the District of Columbia. Time spent in foreign waters does not count as part of the 6-month period.

Even if the boat is not initially taxable in Florida, however, the vessel will again become taxable at a rate of 6% of fair market value if the boat remains in Florida for 90 consecutive days or 183 days within a calendar year.  These basic rules continue to apply.

The Change

The big change in Florida tax is that they have imposed a cap on the total amount that can be due on a vessel.  The capped number is $18,000.  Since Florida taxes at a 6% rate, this means that the change can potentially impact any boat that has a value of greater than $300,000.  The change, therefore, will not have too great an effect on the average family cruiser, but it will have a dramatic effect on boats that are $500,000 and up.  The has already been passed by the legislature and signed into law by the Governor.  This takes effect on July 1, 2010, and covers all sales that occur on or after that date.

 The Duck and the Dodge

Prior to this enactment, boat owners that wanted to enjoy Florida waters, but did not want to pay Florida’s tax had several legal ways to avoid payment (many probably avoided illegally as well).  First, so long as they were not Florida residents, they could bring the boat to another state for part of the year and bring it back to Florida for the cold months.  This worked great for snowbirds, sportfishers and others who tended to migrate with the season.  Larger boats — especially those $1,000,000+ already had a means of avoiding tax.  Those boats could register offshore (the BVI’s, St. Vincent and the Marshall Islands were popular) then bring the boat back to Florida under an annual cruising permit from the U.S. Coast Guard.  Under the cruising permit, the boats could remain in Florida, or anywhere else in the U.S. for one year.  The boats were then required to leave U.S. waters and enter a foreign port, they could then turn around and apply for a new cruising permit.  The significant drawbacks to offshore registration (and the reason more people did not do it) included cost and hassle.  Setting up and maintaining an offshore company to own the boat was a significant ongoing expense (up to $25,000 for initial registration and approximately $5,000 in maintenance fees per year), and the boat was required to depart U.S. waters each year to renew the cruising permit, which increased fuel costs, crew costs, etc.  In addition, there was the issue of perception that many people did not like — a foreign flag on a yacht owned by an American pretty much guaranteed a tax dodge — and the perception could be uncomfortable even if it was perfectly legal.  Anyone that has spent time in Fort Lauderdale has seen the many boats there that were registered offshore — those boats were paying significant annual carrying costs in order to avoid the one-time Florida tax.

 The Ripple Effect

For the immediate, this means that that any boat that has a value of $400,000 or more can realize a significant savings on its tax as compared with paying the uncapped Florida tax.  This will not mean much to those that keep their boats in Rhode Island or Delaware, but for those trying to decide between keeping a boat in Maryland (uncapped 5%), New Jersey (uncapped 3.5% or 7% depending upon the county of purchase) or many personal property tax states such as Virginia, it will be an easy choice.  The greatest effect, however, will be on the big boats that rely on either offshore registration or a full-time crew to keep the boat moving.  With the tax capped at $18,000, it will likely take only two to three years (and maybe less) before they begin to realize savings by paying Florida and avoiding the costs of an offshore corporation, and the costs of fuel and crew to move the boat offshore periodically.  One of the other great disadvantages to having a boat registered offshore is that it could not be chartered in US waters with a Captain or crew provided by the owners.  (This a result of the fact that a non-US built and documented boat is not allowed to enter into the coastwise trades in the United States).  Now, however, if a boat is federally documented and registered to Florida, and it can obtain a coastwise endorsement, it is eligible to be chartered with its regular crew in the United States.  This is potentially a boon to the owners of larger yachts — they can charter their boats while they remain in the care of trusted crew — and they can thereby recoup their tax payment faster.

 Winners and Losers

The probable winners in this scenario include owners of US built fine yachts and other yachts that can obtain a waiver from the Coast Guard allowing them to get a Coastwise Endorsement and thereby charter the boats in US waters.  Crews of those boats will also do well.  The State of Florida, as well as its marinas and marine-workers should also do well — there will certainly be boats that choose to come to and remain in Florida that would not do so otherwise.  Florida boat brokers should also do well — although they also saw some advantages under the offshore scheme that was being used.  This tax cap will also hopefully open up the availability of marine financing, especially in Florida, making purchase loans easier to obtain and causing a reduction in interest rates.

As a guess, the losers in this scenario will be some Captains and crews who will no longer be needed to move boats around, and certainly the cottage industry in the BVIs which provided corporations and related services will suffer.  A sharp reduction in the number of vessel documentation service companies is expected, with this work returning to the purview of maritime attorneys.  The State of Maryland and similar states will also lose to some degree — though most significant boats already avoided those jurisdictions if possible.   An additional consequence of Florida’s new tax cap may be a reduction in the demand for larger yachts that are currently offshore flagged in the BVI’s or elsewhere.  When a vessel is flagged offshore it permanently loses its eligibility to return to the U.S. registry and gain a coastwise endorsement (although it remains its ability to gain a recreational endorsement).  These yachts are therefore permanently precluded from chartering in the United States with a domestic crew.  The reduced income potential of these yachts will likely lead to a reduced demand, especially in light of the terrific deals than can currently be obtained on new and previously-owned US-built yachts.

Pitfalls and Unexpected Consequences

For boats that do take advantage of Florida’s new cap, there are still some open questions.  For example, a $1,000,000 boat registered in Florida would only pay $18,000 in tax.  If that boat came to another use tax state, such as New Jersey and became taxable there, the state could potentially collect on the difference between $18,000 and the amount due under the uncapped rate.  This could be a significant penalty for the unwary.   A related potential pitfall may exist in many marine insurance policies.  Policies issued on the east coast of the United States for larger yachts generally contain navigational and seasonal limitations requiring that vessel be re-located above North Carolina during the annual hurricane season.  Many people already complied with this provision simply because they did not want to leave their vessels in Florida for fear of the potential tax ramifications.  With the passage of the tax cap many people will still be required to move their vessel out of Florida during hurricane season despite paying Florida sales tax in order to comply with the exclusion in their marine insurance policies.  The danger is that many may move their boats to a jurisdiction with a higher tax rate than the Florida capped rate and these states will try to collect the difference.  Many boaters tend to believe that once they pay sales tax they are free and clear for the remainder of the life of their boat, unfortunately this is not the case and many boaters each year feel the sting of use tax and personal property tax assessments.

There is also a great fear that boat dealers and marine service companies throughout the east coast will see a downturn in business as a result of Florida’s tax cap.  With more people moving their boats to Florida, there could be a potential drain on the marine economy in uncapped states such as Maryland and New Jersey.  States have always had a difficult time attracting boaters away from Florida with its sunshine and endless beaches, these difficulties will now be exacerbated by Florida’s more attractive tax regime.  It will be interesting to see how states respond in the coming years as the true effect of Florida’s new tax regime is studied.  Maryland, for example, now finds itself in the unenviable position of being directly south of a tax-free state (Delaware), directly north of a tax-capped state (Virginia), and now forced compete with tax-capped Florida.  Through the enactment of its new tax cap, Florida may have forever changed the landscape of the recreational boating industry, whether this is a positive or negative change depends solely on your perspective.

How to avoid paying taxes on your boat…legally!

Eds. Note: This article originally appeared in the Waterway Guide as a feature for cruisers.   Updated to reflect Maryland’s cap – more here.

Dirk Schwenk, Esq., is a real estate and maritime attorney located in Annapolis, Maryland.  If you are interested in his non-tax practice, please see Baylaw, LLC. For issues specific to waterfront property, please see Waterfrontlaw.

In my last article, I wrote about Maryland, specifically Maryland’s boat tax, and while Maryland and the Chesapeake are fantastic cruising grounds, I do recognize that there are other states in the Union. Since many of you readers and many of my clients venture out in the world-visiting far flung locales from Maine to Florida, the Caribbean and far beyond-I am often asked about the tax implications of other jurisdictions. I take these inquiries to mean:

How can I legally avoid paying taxes on my boat?

There is of course no simple answer to the question. If there were, the tax authorities would close it. That’s what happened in the good old days when it was pretty safe to register a boat to Delaware, place it in Coast Guard documentation, and call it good.

After reading this, many folks will just want to buy their boat, pay the tax, and go cruising, and that’s great. Many boat taxes support boating related activities and needed facilities. Others purchasers, however, plan to leave the country, or keep the boat moving for a long time, and perhaps have a higher threshold for risk. Paying sales tax may not be desirable or necessary, and they may be willing to do what is necessary to organize their boating life in a way that is not subject to tax.

This article is the first step, and the easiest step in that direction.

Before we get into specifics, however, let’s go back to the beginning. What kind of tax are we talking about and who collects it? There is no federal vessel tax (and may the federal luxury tax stay good and dead!), so taxes are imposed at the state and local levels. Generally, there are three taxes of concern to boat owners: sales tax, use or registration tax, and personal property tax. Sales tax is imposed, if at all, at the time of purchase. Use tax is imposed by sales tax states on goods that were not taxed at the time of purchase. Personal property tax is an annual tax, payable every year, on property that is kept within a jurisdiction. This article will focus on sales tax.

It is hard to keep track of all of the state taxes, and nearly impossible to keep track of all of the county and municipal taxes. Not only are they all different, but they also all subject to change. BOAT/US provides a good general comparison of state taxes on its website but I understand that it is being updated now after several years without revision.

Below is a table that gives the bare-bones of the state taxes in the East Coast cruising grounds as they exist at the moment (revised 2016). It does not include many defenses, exceptions, exclusions, penalties, interest on late payments, and any number of other important details, nor is it legal advice, but it does provide a rough snapshot of the tax on the purchase of a boat.

State Sales tax on boats? Personal property tax?
Alabama 2% No
Connecticut 6% No (but higher registration fees)
Delaware No No
District of Columbia No No
Florida 6% No
Georgia 4% + local Yes
Maryland 5% (2013 Edit — at least temporarily, MD is capped.  Here) No
Massachusetts 5% Yes
Maine 5% Yes
New Hampshire $10 to $1761.40 depending on size and propulsion with some exemptions No
New Jersey 3.5% Capped in 2016 at $20,000 Yes
New York 8.25% most counties Capped at $18,975 No
North Carolina 3% with $1,500 cap Yes
Pennsylvania 6%-7% No
Rhode Island No No
South Carolina 5% with $300 cap Yes
US Virgin Islands No No
Virginia 2% capped at $2,000 Yes

Mr. Schwenk provides representation in purchase, sale and tax and also buyer’s broker (selling broker) services to select clients.  It is strongly recommended that you do not enter into a contract with dual agency (one broker as both listing and selling broker).  If you would like buyer’s representation – please email with the heading “Baylaw Buyer’s Broker” or use this link: 

To return to the question-How can I legally avoid paying taxes on my boat-the middle column is the key. Sales tax is the tax on a purchase or transfer of a boat. If you want to avoid sales tax, the easiest option is to finalize your purchase in a jurisdiction that doesn’t tax the sale or caps the tax at a low number. This may mean driving to Delaware and choosing a boat at a Delaware dealer.

There are more sophisticated strategies as well, such as writing a contract that requires a Massachusetts boat to be purchased through a transaction that takes place New Hampshire. Or taking final possession and completing the purchase of a boat in international waters-this is where most of the big boats go. These latter items have their risks, however, particularly the fact that they make local tax authorities suspicious, even if the transaction is properly done. It does not help matters that some unscrupulous purchasers will fake an out-of-state or international transaction, and thereby paint legitimate purchases in a bad light.

Another very good option to avoid initial sales tax is to identify an escape clause in your local tax jurisdiction. In Maryland, for example, one need not pay sales tax on a boat that files a certification stating that it is going to leave the state within 30 days of purchase. Similarly, in Florida, a non-resident need not pay tax if the boat is taken to a different state shortly after purchase. If you anticipate taking your boat out of the country, using it in a state that does not have a sales tax, or actively cruising between lots of jurisdictions, avoidance of paying the initial sales tax can be a big cost savings. If nothing else, a boat can depreciate a good deal over the course of a few years.

I stated above that this article would address the first step in legally avoiding tax on a boat. Well, that was it. The first step is to legally avoid sales tax. Anyone that has been around boats, however, will recognize that this is just the beginning. Most sales tax states have two other closely related taxes, title tax and use tax. Use taxes were devised to take the profit out of going across state lines to purchase products, which is exactly the conduct we’re talking about here.

Use tax is usually imposed at the same rate as sales tax and is imposed when you bring the boat back into a state. Use tax must be of primary concern to anyone that has not paid sales tax. (If you have paid sales tax to a state however, you can rest easy, as sales tax is an offset to use tax). For Marylanders, use tax is the tax that a buyer will face on the boat purchased in Delaware and brought home on a trailer.

Future installments of this Waterway Law column will address use tax and personal property tax. These taxes are more complicated in their application than sales tax and take much more sophistication to legally avoid. Use tax is triggered by the use of the vessel and is subject to lots of argument about how much time triggers the tax as well as exceptions and defenses. Personal property tax is often collected by local counties or cities, and so it can be widely different even within a single state. There are no simple answers here.

In the meantime, if you are buying or have purchased a boat for a significant amount of money, you should seek specific legal advice about how to conduct your affairs. Avoiding sales tax is only the first step, but if done improperly, can bring far worse consequences such as penalties, interest, liens, etc. A good lawyer can provide advice about how to maintain your boat in a situation in which it does not owe tax, and if you follow that advice, you can save a significant amount of money.

Happy cruising!

Maryland’s winter of discontent

Boat Tax 2007 Maryland Overview from Waterway Law
Eds. Note: This article was published in the online Waterway Guide, December, 2007. It is reproduced with thanks to Dozier’s Waterway Guide and Skipper Bob Publications.

Maryland’s winter of discontent

(because that’s when the taxman comes)

Waterway LawEditor’s note: With controversy roiling over South Carolina’s boat tax policy, we thought we would ask the experts from the Annapolis law firm of Baylaw, LLC to explain how taxes work in some of the big boating states along the Waterway.

By J. Dirk Schwenk

Yes, its that time again, the winter ducks arrive, the cold fronts roll in, and Boat Tax Enforcement Division on the Maryland Department of Natural Resources wraps up its seasonal investigations and issues vessel tax assessments. You will know it if you get one, it says “Assessment of Tax” and it’s printed on colored paper. It notifies you that you have 30 days from its issuance to appeal or it becomes final-and you do not have much of a remedy if you do not agree with its contents. Do not dawdle, the 30 days is a real deadline.

For the uninitiated, this paper can be quite a shock. It is the culmination of an investigation which typically includes monthly surveys of your boats location, an analysis of its fair market value, and an investigation into its ownership, including the ownership of any corporation that may it may be titled to. For a $100,000 boat, the assessment is an unexpected bill for 5 percent of the value ($5,000) plus a 10 percent penalty ($500) plus interest running at 18 percent from the date that the boat became taxable, up to three years.

Interest can easily eclipse the amount of the penalty, and so the bill can easily reach and surpass $6,000 on a $100,000 boat. Scaling up, the bill on a $1 million boat can easily reach and surpass $60,000. If for any reason the DNR believes that tax was avoided on the basis of fraud or gross negligence, the penalty will be 100 percent of the tax, and so the total assessment will be growing toward $12,000 or $120,000.

Most boaters will not face such an assessment because they will have paid sales tax on their vessel at the time of purchase or they will have paid tax when they registered and titled the vessel. Such is the case for a runabout purchased from a Maryland dealer or titled with Maryland. There are, however, lots of boats that are not subject to sales tax at purchase, including boats purchased in non-tax states (i.e. Delaware or Rhode Island), boats purchased abroad, home-built boats and some commercial vessels.

If those boats are federally documented, they are not subject to state titling laws, and they may not have been legally obligated to pay tax. This is the favorite bait of boat tax enforcement: the federally documented vessel that has not previously paid sales or use tax to any state. The second favorite bait? The boat that is registered to a non- or low-tax state such as Virginia, but that is principally used in Maryland. If you are in one of those categories (and you have not yet fallen asleep) you should definitely continue reading.

Maryland taxes boats in three main instances, all of which are subject to certain caveats and exceptions. Those instances are:

1) a boat that is purchased in the State;

2) a boat that is titled in the state; and,

3) a boat that is principally used in the state during any particular calendar year, assuming that it is in the State more than 90 days in that year.

The first item is pretty clear. If the money and the boat change hands in this state, it’s a Maryland purchase, if parts of the transaction take place out of state, well, it depends. The second item is clear. If you apply for a Maryland title (or you are required by law to do so), tax is due. The third item is the one that causes the most consternation for boaters -Principal Use.

Under Maryland law a boat is in principal use in the state or territory of the United States in which it is used most during a calendar year. Thus if you use it 100 days in Maryland, 200 days in the BVI and 50 days in Florida, the state of principal use is in Maryland. BVI does not count (it’s not a state of the United States) (EDS NOTE — AS OF JANUARY, 2008, IT IS POSSIBLE THAT THE BVI AND OTHER NON-US JURISDICTIONS MAY COUNT — IF IT MATTERS TO THE ANALYSIS OF YOUR CASE, PLEASE CALL FOR SPECIFIC ADVICE), and Florida has less days than Maryland.

Things get a bit tricky from that point, though. Days only count in Maryland if the boat is “in use.” In use does not mean its being used (in the sense of operating it), but means by definition any time that it is in the water or any time that it is kept in a structure in readiness for use. Thus (stay with me here) a boat that is in Maryland, outside, and out of the water is not in use; but a boat that is in the water but not being used, is in use. Also, it is generally recognized that a boat that is in the water but winterized is not in use for principal use analysis, but it is considered that a boat on a trailer, indoors or out, is in use.

Confused? No worries … so is everyone else.

So what should you do if you get an assessment, or perhaps more importantly, if you would like to avoid getting one? First, you should be aware that Maryland recently extended its cruising window to 90 days-if the boat was not purchased in Maryland, you can cruise for no more than 90 days without facing tax liability, even if you do not spend more time in another single state.

Second, you should be aware that there are exceptions for boats that are out of the water, winterized, or undergoing significant repairs. The details of those exceptions will have to wait for another article, but they should be considered if the boat is going to be (or has been) in Maryland for an extended stay. Third, you can be sure to keep (and keep evidence of keeping) your boat in another state for more days than in Maryland. Finally, if you receive an assessment, be sure to act quickly. If you have good defenses, and you do not raise them in time, they will not be so good.

If you are going to need counsel-that is, if you may have a defense and there is a significant amount at issue-identify one who knows this area, hire them in time get an appeal in the 30 day deadline, and do so before contacting the DNR yourself. I often see people revealing facts that were better left unsaid, or paying tax that was not owed. A little bit of good advice can save a lot of heartache in the long run, it may also be able save money in any negotiation if tax must be paid.

(This explainer comes courtesy of J. Dirk Schwenk.  He has been active in maritime and Admiralty law since 1999, is based in Annapolis, MD, and focuses on issues of concern for vessel owners, marine businesses and those that live, work and play on the water.)

High Court’s Boat Tax Ruling May Have Local Impact

Dirk Schwenk’s note, December, 2009: On April 1, 2005, the Ocean City Dispatch picked up the story on the Kushell v. DNR decision. Boat owners should be aware that the statute was changed after this decision and no longer requires that a boat be purchased with the intent that it be used in Maryland waters.  If you receive an assessment in 2010, there remain significant other defenses to an assessment for vessel tax. 

High Court’s Boat Tax Ruling May Have Local Impact

Benjamin L. Mook, Editor

OCEAN CITY (05/01/2005) – A legal setback dealt to the Department of Natural Resources (DNR) this month over what amounted largely to comma placement could set a precedent for out-of-state boat owners who bring a vessel to the resort area.

The Maryland Court of Appeals ruled this month in the case of Charles J. Kushell IV v. Maryland State Department of Natural Resources. The case centered on the agencies efforts to collect over $14,000 in unpaid boat excise tax and penalties. Kushell bought The Genesis, a 58-foot Spindrift Motoryacht, in 1989, in California. He later moved to Maryland part-time, where he was targeted by the DNR’s boat tax enforcement division.

In Maryland, boats purchased in-state are subject to sales tax. According to the DNR, boats purchased outside the state, but used principally in Maryland are subject to a boat excise tax.

The DNR not only levies an excise tax of 5 percent of the fair market value, but also a 10 percent penalty and 18 percent back interest. The late penalty interest generally goes back three year, which is the statute of limitations.

This law was challenged by Kushell, who claimed he did not intend to use the boat principally in Maryland. Kushell and his attorney, Dirk Schwenk, argued that the wording of the legislation supported this belief.

The court’s opinion, written by Judge Irma S. Raker takes the argument further and is sprinkled with grammatical references highlighting the importance of comma placement in the vein of the bestselling book “Eats, Shoots and Leaves: The Zero Tolerance Approach to Punctuation,” by Lynne Truss.

“An actor playing Hamlet would hardly expect his audience to accept, ‘Or not to be: that is the question,’ as an inconsequential alteration,” Raker wrote in her opinion.

In the end, the Court of Appeals overturned the Anne Arundel Circuit Court, which favored the DNR.

Schwenk said this week the new ruling gives ammunition to boat owners who want to fight the DNR-imposed penalties. He said the ruling is especially important to the Ocean City and West Ocean City areas, which are home to private and commercial vessels that could be affected.

“The majority of the new cases I’ve been seeing have come from the Ocean City area,” Schwenk said. “DNR has targeted that area for enforcement.”

Locally, DNR has filed three boat tax liens in Worcester County Circuit Court since January. Two of the cases were filed this month alone, after the court’s decision.

The agency is seeking over $2,000 in unpaid tax from one boat owner and over $6,000 from another. It also levied a lien against a local commercial fishing company for over $20,000.

With the Maryland General Assembly now in its final stretch, the legislation will likely be addressed later this year. Schwenk said he hoped DNR would open the process up for comment when it addressed re-writing the law to meet the court order.

“Hopefully, this will be a cooperative process and everyone will be involved, and not just a rewrite of the same legislation that was overturned,” Schwenk said.

2005 Court of Appeals Decisions

Dirk Schwenk’s note, January 2010: Boat owners should be aware that the statute was changed after this decision and no longer requires that a boat be purchased with the intent that it be used in Maryland waters. There remain significant other defenses to an assessment for vessel tax.


On March 14, 2005, Maryland’s highest court, the Court of Appeals, spoke for the first time on the interpretation of Maryland’s vessel excise tax. In Kushell v. DNR, a case briefed and argued by J. Dirk Schwenk. The Court held that the Department of Natural Resources could not tax all federally documented vessels.   For decades, the DNR had taken the position that it could tax any boat that was principally used in Maryland.  Mr. Kushell admitted to having his boat in Maryland, but argued that he did not purchase the boat with the intent that it be principally used in this state, since he had used it in California for nearly a decade before entering Maryland waters.   Kushell argued that he could only be taxed if he had: “possession within the State of a vessel purchased outside the State to be used principally in the State” under the statute.

This argument was repeatedly rejected, including by the Office of Administrative Hearings (the first level of the case); the Secretary of the DNR (the second level of appeal); and the Circuit Court for Anne Arundel County (the third level of appeal).   The Court of Appeals, however, unanimously agreed with Mr. Kushell (and Mr. Schwenk) and held that the plain language of the statute required that, to be taxable, a federally documented boat must be purchased with the specific intent that it be principally used in Maryland.

Because of the way that boat tax is structured, this should also mean that a boat purchased and registered in another state is not taxable, so long as the numbering system of the other state is maintained.   On the same day, the Court issued a second decision concerning the boat tax.   This appeal was not handled by Baylaw, LLC, and its result went against the vessel owner.   In Schwarz v. DNR, the vessel owner purchased the boat in Maryland, but did not remove it within 30 days as the DNR requires in order to avoid tax.   The vessel owner argued that he kept the boat in Maryland for a longer period because the boat required significant warranty repairs.

Ultimately, the vessel owner invested nearly $35,000 in after-market stabilizers to address a significant stability issue, then took the boat South to Florida.   During the first appeal, the Office of Administrative Hearings held that Mr. Schwarz did not meet the repair exception to the tax because the boat had not been “held for maintenance or repair” for periods of greater than 30 days, and it was therefore simply being used in Maryland waters.   In the Circuit Court, the judge held that there was no exception at all to the tax for a boat that was purchased in Maryland, and so the “maintenance and repair” exception did not apply.   The Court of Appeals clearly struggled with whether the Circuit Court was correct, but in a split decision analyzed the case on the basis of the maintenance and repair issues.   In so doing, the Maryland’s boat dealers and brokers narrowly avoided a decision that could have crippled the industry, since every boat purchased or sold in Maryland would have been taxed, irrespective of where the boat was to be used.

In dissent, Judge Wilner stated: “If the Circuit Court’s reading of the statute is correct [that there is no exception to the tax for boats that are purchased in Maryland], but may cause some economic hardship to the boating industry in Maryland, the industry can ask the General Assembly, which is now in session and will remain in session for another month, to reconsider the tax statute and create the exemption that is not presently there.   That is the normal way, and a perfectly effective way, in which a statutory construction decision by this Court can be reviewed by the Legislature.   If the General Assembly believes that the kind of exemption created by the Department of Natural Resources should exist, it can easily and quickly place it into the law.   To acknowledge but then fail to address the issue will, because of the lingering uncertainty, create more of a hardship for the boating industry than a clear decision which, unfavorable to the industry, can easily be corrected by the legislature.”


And so, boat dealers and brokers were that close to losing the 30 day exemption to the boat tax.   What the DNR will do next remains to be seen.   The Court’s decision can be found at Schwarz v. DNR. Dirk Schwenk’s Note, December 2009 — The DNR and legislature did modify the statute to expressly provide for a 30 day window in which to take a boat purchased in Maryland out of the state. There is also now a 90 day window in which a boat purchased elsewhere can be brought into Maryland and cruised.

As always, boat tax issues are entirely tied up in the peculiar facts of the situation, and this page must be viewed as general information and not specific advice. The intent of a purchaser is particularly subject to inference, and should be presented in the best possible light, if one is to achieve success on this point. There are no cases addressing the fine line indicating when a boat is purchased with the intent that it be principally used in Maryland, so this area is ripe for both powerful advocacy and grave misstep. If proceeding without representation, great caution is advised.

Boat Tax 2005

Dirk Schwenk’s note, December, 2009 — Since this article was written, there have been significant changes made to the Maryland boat tax statute.  The principal defense discussed in this article (purchasing a boat for use out of state) is no longer valid.  There are new exceptions to tax, however, including a legislative 90 day window in which to use Maryland waters.  If you receive a tax assessment in 2010, please call us immediately, as there is only 30 days in which to respond. 


On March 28, 2005, the Annapolis Capital picked up the story on the Kushell v. DNR decision, putting the article on the front page.

Boat tax ruling could cost state $10 million annually
By ERIC HARTLEY, Staff Writer

It could be the most expensive grammar lesson ever.

A recent Maryland Court of Appeals ruling that hinged on the lack of a couple of commas in a state law – among other finer points of language – could cost the state $10 million a year in boat tax revenue, according to the lawyer who won the case.

And, the lawyer believes, the state could be forced to refund some tax money already collected.

State officials had no comment Friday or today on that possibility, but the head of a boating industry group agreed that many who have paid the tax might be looking for their money back

“We have several attorneys that have membership in Marine Trades, and I’m sure they’re thinking that,” said Susan Zellers, executive director of the Marine Trades Association Of Maryland.

Ruling that state law doesn’t allow the government to collect taxes on many boats bought out of state, the Court of Appeals on March 14 threw out a $14,304.54 tax bill sent to Charles J. Kushell IV, a Connecticut businessman who has kept a powerboat in Maryland part-time.

The effects of the ruling could be sweeping, said J. Dirk Schwenk, an Annapolis attorney who specializes in maritime law and represented Mr. Kushell.

“For every boat not purchased in Maryland, this case could have implications,” Mr. Schwenk said.

The state’s highest court held that the law only requires people to pay taxes on out-of-state boat purchases if they intended to use the boat mostly in Maryland when they bought it.

Judge Irma S. Raker wrote the court’s 20-page opinion, which reads at times like a grammar textbook. It includes such head-scratching phrases as “The issue is one of antecedents” and “In ordinary usage, modifiers refer to the nearest plausible antecedent.”

In layman’s terms, the ruling says the crucial phrase in the State Boat Act refers to what makes a boat taxable – “the possession within the state of a vessel purchased outside the state to be used principally in the state.”

The Department of Natural Resources argued it could levy the tax because Mr. Kushell was keeping the boat in Maryland more often than any other single place. Intent was irrelevant, DNR argued.

But in her ruling, Judge Raker wrote that DNR’s interpretation would only be right if the clause in the law read slightly differently – “the possession within the state of a vessel purchased outside the state, used principally in the state,” perhaps, or “the possession within the state of a vessel, purchased outside the state, to be used principally in the state.”

Adding commas or deleting the words “to be” are hardly minor changes, as Judge Raker noted in a footnote: “An actor playing Hamlet would hardly expect his audience to accept ‘Or not to be: that is the question’ as an inconsequential alteration.”

Mr. Kushell bought the boat in question, a 58-foot Spindrift Motoryacht called the Genesis, in 1989, when he was living in California. He kept it on the West Coast until 1996, when he started using it in Florida and the Bahamas.

Mr. Kushell started taking the boat to Maryland for the summer in 1997. He believed he didn’t have to pay tax on the boat in Maryland because if he kept it there less than six months a year, Maryland wouldn’t be considered the primary place he was using the boat.

At the end of 2001, Mr. Kushell was sent a bill for $14,304.54 in tax, penalties and interest. He paid it, but challenged the bill. An administrative law judge, the secretary of natural resources and a Circuit Court judge upheld the tax.

But after Mr. Kushell appealed to the Court of Special Appeals, the Court of Appeals decided on its own to take up the case and settle the issue. DNR officials had no comment on the case when called Friday and this morning.

Mr. Schwenk said the state collects about $25 million a year in boat taxes, about half from boats bought out of state. People who already have paid the tax could challenge the bill as Mr. Kushell did and – armed with the new court ruling – likely prevail, Mr. Schwenk said.

And the ruling could prevent the state from charging the tax in the future, though the General Assembly could change the law.

The case could also have another effect – drumming up business for Mr. Schwenk. Indeed, his public relations firm sent out a press release this week trumpeting the decision and its possible effects.

Mr. Schwenk said he hasn’t gotten any cases yet directly because of the ruling, but “I imagine we will.”