Eds Note – Maryland passed a $15,000 tax cap in 2013. Please see https://boattax.com/maryland-2013-the-tax-cap-is-here-use-it-now/ for details.
Thankfully for 2010, there have been very few changes to Maryland’s boat tax provisions. The overall scheme remains the same: boats purchased in or principally used in Maryland are subject to a one-time tax of 5% of their fair market vale. There are, of course, myriad exceptions, traps and defenses of which boaters should be aware. Here are few of the most important.
- Boats Purchased in Maryland. A boat purchased in Maryland is subject to tax unless the owner certifies on the Maryland’s DNR-B110 form that the boat is to be taken out of the state, registered and used in another jurisdiction within 30 days of the time that tax is due. For most small boats, this simply means paying the tax on the day of sale. For larger boats, there are many questions to consider, including whether a boat is in commissioning (if so, the time does not yet run), whether there has been a final sale (what if payment has been made but the boat has not yet been delivered to Maryland?) and whether of not to finalize a transaction in Maryland at all. Some boat owners choose to conduct settlement in other jurisdictions so as to avoid the 30 day limit.
- Boats Purchased Outside of Maryland. If a boat is purchased in another jurisdiction, it is potentially subject to the 5% use tax. Generally speaking, Maryland law recognizes a 90 day period in which a boat can be cruised without tax. If the boat is in Maryland for more than 90 days, then it is taxable if it is in “principal use” in the state. Principal use means that it is in Maryland more than it is in any other single jurisdiction. Thus, if it is in Maryland 100 days, and the remaining time is split between the Virgin Islands, Florida and Maine, it is subject to tax in Maryland, because it was not in any other single jurisdiction more than it was in Maryland.
- Boats under repair or listed for sale in Maryland. There is a good deal of misinformation about these two exceptions to tax. A boat that is held for maintenance or repair for a period of 30 days or more, on a schedule with boat repairers and that spends more for the repairs than it would for simple dockage may meet the repair exception – but it is not as simple as simply leaving it in a slip and having the bot tom periodically cleaned. Similarly, for a boat to make the listed-for-sale exception, it is required to file a form with the DNR (your broker should provide this!) AND the boat cannot be used for personal use other than for sea trial for prospective purchasers. We have had cases of liveaboards trying to claim their boat is listed for sale and not taxable – we do not recommend this.
- Penalties and Interest. As always, the most upsetting aspects of Maryland’s tax are the penalties and interest. Every boat that fails to pay the tax within 30 days of the date that it is due is subject to a 10% tax. If the DNR believes that fraud or gross negligence is indicated (such as when a boat is certified to leave the state within 30 days of purchase, but does not), then there is a 100% penalty. Interest runs at 18% — and from the DNR’s perspective it is often running during a period that the boat owner is not even aware that he or she is going to be assessed for taxes.
- Tax Assessments. Maryland issues most of its boat tax assessments after it completes its annual investigations (approximately November 1), which means that many boat owners will get an unexpected bill during the first quarter of the year. The most important thing to know about tax assessments is that THERE IS ONLY 30 DAYS TO RESPOND if one is going to appeal. Ignoring the assessment will limit the defenses available, and may mean that there is not way to respond. Assuming a timely response, assessments should be closely analyzed for the accuracy of the fair market value assigned to the boat and for the time period that the boat is said to have been in Maryland.
- Text of the Maryland Tax Section in the State Boat Act. Here are some of the key definitions and provisions from the Maryland State Boat Act, § 8-716. Certificate of title – Fees; excise tax.
(2) “Commissioning procedures” means the initial outfitting of a vessel immediately after the purchase of the vessel, including the installation of rigging, electronic gear, propulsion machinery, generators, or other related gear.
(3) “Fair market value” means:
(i) As to the sale of any vessel by a licensed dealer or a dealer licensed by another state or a foreign country, the total purchase price, as certified by the dealer on a form acceptable to the Department, less the value of any vessel that is traded in as part of the consideration for the sale, which trade-in value may not exceed the value for the trade-in vessel as shown in a national publication of used vessel values adopted by the Department;
(ii) As to any other vessel that is sold by any person other than a licensed dealer, the greater of:
1. The total purchase price; or
2. $100; or
(iii) As to any other vessel that is sold by any person other than a licensed dealer, either:
1. The total purchase price, if verified by means of a certified bill of sale approved by the Department, in which the actual price paid for the vessel is stated; or
2. The valuation shown in a national publication of used vessel values adopted by the Department if a certified bill of sale does not accompany the application.
(4) “Used principally in this State” means that this State is the state of principal use as defined in § 8-701(p) of this subtitle, except that in calculating where the vessel is used or used most, a vessel is not considered to be in use for any period of time that it is held for maintenance, repair, or commissioning for 30 consecutive days or more.
(5) “Sea trial” means a period of on-the-water operations, not to exceed 1 day, that is conducted:
(i) For the purpose of testing the effectiveness of specific maintenance, repairs, or commissioning procedures; or
(ii) For a vessel held for resale by a licensed dealer under this section.
(7) (i) “Vessel” has the meaning indicated in § 8-701(s) of this subtitle.
(ii) “Vessel” does not include a ship’s lifeboat, a vessel propelled only by sail, or vessel manually propelled.
(c) Levy and amount of excise tax; title tax in lieu of sales tax or use tax; owners prior to June 1, 1965 exempt.-
(1) Except as provided in § 8-715(d) of this subtitle and in subsections (e) and (f) of this section, and in addition to the fees prescribed in subsection (b) of this section, an excise tax is levied at the rate of 5% of the fair market value of the vessel on:
(i) The issuance of every original certifi cate of title required for a vessel under this subtitle;
(ii) The issuance of every subsequent certifi cate of title for the sale, resale, or transfer of the vessel;
(iii) The sale within the State of every other vessel; and
(iv) The possession within the State of a vessel used or to be used principally in the State.
(2) Notwithstanding the provisions of this subsection, no tax is paid on issuance of any certifi cate of title if the owner of the vessel for which a certifi cate of title is sought was the owner of the vessel prior to June 1, 1965, or paid Maryland sales and use tax on the vessel as required by law at the time of acquisition. The Department may require the applicant for titling to submit satisfactory proof that the applicant owned the vessel prior to June 1, 1965.
(d) Remittance of uncollected tax.- If the tax is not collected by a licensed dealer pursuant to § 8-716.1 of this subtitle, the owner, whether or not applying for the issuance of a title, shall remit the tax directly to the Department within 30 days of the date of sale or, in the case of a vessel purchased outside the State, within 30 days of the date upon which the possession within the State became subject to the tax.
(e) When fee or tax not required to be paid.- A person is not required to pay the tax provided for in subsection (c) of this section resulting from:
(1) A transfer between members of the immediate family as determined by Department regulations;
(2) A transfer between members of the immediate family as determined by Department regulations of a documented vessel for which the transferor applied for and was issued a valid use sticker under § 8-712.1 of this subtitle;
(3) A transfer to a licensed dealer of a vessel for resale, rental, or leasing purposes;
(4) The holding of a vessel that is titled or numbered in another state or is federally documented, provided:
(i) The vessel is held for resale or listed for resale by a licensed dealer; and
(ii) The vessel owner signs an affidavit that there will be no use of the vessel on the waters of the State other than for a sea trial;
(5) Purchase of a vessel by the State or any political subdivision;
(6) Purchase of a vessel by an eleemosynary organization which the Secretary has approved;
(7) The purchase within the State of a vessel if the owner paid or incurred a liability for the Maryland sales and use tax on the vessel prior to July 1, 1986;
(8) The possession within the State of a vessel which was purchased outside the State if the owner paid or incurred a liability for the Maryland use tax on the vessel prior to July 1, 1986;
(9) The possession of a vessel in the State that is not used or to be used principally on the waters of the State and for which the issuance of a title is not sought or required under this subtitle, except that:
(i) A vessel is not deemed used on the waters of the State if the vessel is used for 90 days or less of a calendar year; and
(ii) If a vessel is used for more days than 90 days in a calendar year, the period of 90 days shall be counted in the determination of principal use under this subtitle;
(10) The possession within the State of a vessel if the current owner, before July 1, 1986:
(i) 1. Was licensed by the Department to catch, for commercial purposes, finfish, eels, crabs, conch, soft-shell clams, hard-shell clams, oysters, or any other fish; and
2. Used the vessel for any of the commercial fishing purposes described in item 1 of this item; or
(ii) 1. Was licensed as a commercial fishing guide under the provisions of § 4-210 of this article; and
2. Used the vessel as a charter boat with a license as provided in § 4-745(d)(2) of this article;
(11) The possession within the State of a vessel that:
(i) Is owned by a nonprofit organization that:
1. Is qualified as tax exempt under § 501(c)(4) of the Internal Revenue Code; and
2. Is engaged in providing a program to render its best efforts to contain, clean up, and otherwise mitigate spills of oil or other substances occurring in United States coastal and tidal waters; and
(ii) Is used for the purposes of the organization;
(12) The possession within the State of a vessel for a period of not more than one year if the current owner is a member of the armed services and is serving on active duty in this State; or
(13) The sale of a vessel within the State if:
(i) The vessel is purchased from a licensed dealer;
(ii) The issuance of a title is not sought or required;
(iii) The vessel is not used or to be used principally on the waters of this State;
(iv) The vessel is duly registered in another jurisdiction within 30 days of the date of purchase; and
(v) The dealer and the purchaser execute an agreement certifying the state of principal use for the vessel which is filed with the Department within 30 days of the date of purchase.
(f) Applicability to possession within the State of a vessel.-
(1) This subsection applies to possession within the State of a vessel if:
(i) The vessel was formerly:
1. Titled or numbered in another jurisdiction; or
2. Federally documented and principally used in another jurisdiction;
(ii) The present owner has paid a sales or excise tax on the vessel to the other jurisdiction; and
(iii) The jurisdiction to which the tax was paid would allow an exemption or credit under its sales or excise tax for excise tax on a vessel formerly paid to the State.
(2) For a vessel described in paragraph (1) of this subsection:
(i) If the rate of the tax paid to the other jurisdiction is not less than the rate under subsection (c) of this section, the tax imposed under subsection (c) of this section does not apply to possession of the vessel within the State;
(ii) If the rate of the tax paid to the other jurisdiction is less than the rate under subsection (c) of this section, the rate of the tax imposed under subsection (c) of this section on possession of the vessel within the State is the difference between the tax rate paid to the other jurisdiction and the rate under subsection (c) of this section; and
(iii) The Department may require the taxpayer to submit satisfactory proof of the payment of a tax to another jurisdiction and the rate of tax paid and, where applicable, evidence of principal use of a federally documented vessel in another jurisdiction.
(3) This subsection is applicable to any vessel incurring a liability for Maryland boat excise tax on or after July 1, 1986.
(g) Tax credit.-
(1) A person may claim a credit against any tax imposed under subsection (c) of this section on a vessel for sales tax the person has paid to the State, to another state, or to the District of Columbia on materials and equipment that are incorporated into the vessel, if:
(i) 1. The person is licensed by the Department to catch, for commercial purposes, finfish, eels, crabs, conch, soft-shell clams, hard-shell clams, oysters, or any other fish; and
2. The vessel is to be used for any of the commercial fishing purposes described in item 1 of this item; or
(ii) 1. Was licensed as a commercial fishing guide under the provisions of § 4-210 of this article; and
2. Used the vessel as a charter boat with a license as provided in § 4-745(d)(2) of this article.
(2) The Department may require a person claiming the credit allowed under this subsection to submit satisfactory proof of payment of the sales tax and that the materials or equipment have been incorporated into the vessel.
(h) Overpayment of tax.- If the Department determines there has been an overpayment of the tax on a vessel, or an overpayment has resulted for any other reason, the Department may submit the overpayment and supporting data whether accompanied by a written claim or not to the State Comptroller for refund to the appropriate person.
(i) Vessel held for maintenance or repair.-
(1) For purposes of subsection (a)(4) of this section, a vessel is deemed to be held for maintenance, repair, or commissioning if:
(i) The maintenance, repair, or commissioning work is provided in exchange for compensation;
(ii) The maintenance, repair, or commissioning work is performed pursuant to a schedule preestablished with one or more marine contractors; and
(iii) The total cost of the maintenance, repair, or commissioning work is at least two times the reasonable current market cost of docking or storing the vessel.
(2) Time spent conducting sea trials shall be included when calculating the period of time a vessel is held for maintenance, repair, or commissioning under subsection (a)(4) of this section.
J. Dirk Schwenk, Baylaw, LLC.