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  The principal defense discussed in this article (purchasing a boat for use out of state) is no longer valid.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.”