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.