On July 1, 2013, a new cap on the amount of vessel sales and use tax will take effect, and the maximum tax that can be applied is $15,000. This means that a boat of greater than $300,000 will achieve tax savings. There is a 2016 sunset provision, but for at least the next 3 years, there is every incentive to purchase and homeport larger boats in Maryland. Let’s hope that continues past 2016. Let’s also thank the Marine Trades Association of Maryland who did much of the heavy lifting in the legislature to get this done. The specific text of the bill as passed can be found HERE.
If you are a purchaser, seller, broker or dealer who has a transaction that you would like to close prior to July 1, 2013 — here is what you need to be able to get the benefit of the tax cap NOW. There are two ways to do this:
1) arrange the transaction so that the closing takes place out of Maryland (so that tax is not payable at purchase). Tax will be due when the boat is principally used in Maryland – likely 30 to 90 days from return.
There is a previous post on the details of arranging a transaction out of state HERE. There are two quick ways to do this. First, take the boat over the border to a non tax state (Delaware or Virginia (0$ for used boats, $2000 for new) and hold a closing in that jurisdiction – just make sure to document the location of the closing. Second, if the boat is in Maryland and is not being moved for delivery, one can define the state of transaction in the contract. The alternative state should be one that has a reasonable relation to the contract (like the state of residence of the purchaser, or the state where the documents are signed) and should be a non tax state. Doing this creates a bit more hassle in the transaction, but it can save a lot of money for the purchaser. Maryland brokers should hold the tax in this case, and submit after the boat returns and becomes taxable.
2) arrange the transaction so that the final closing is not until after July 1 (ie – place a modest holdback in the transaction payable after shakedown and commissioning).
Under the Uniform Commercial Code (which governs purchase and sale of products), the moment of sale can be defined by contract and the contract can be used to delay the final moment of sale to a point relatively late in the game. So, for example, one can complete virtually the entire transaction, but define the date of sale by creating a hold-back from the total purchase price that is payable after, for example, a shakedown period of 60 days. In this environment, that should be sufficient to reach the July 1, 2013 beginning date for the new cap.
A WORD OF CAUTION
Both of the strategies outlined above are completely legal and supported by the applicable provisions of the Uniform Commercial Code. But, boat tax collectors are people, and not always guided by the black letter law. So if a transaction feels like a Maryland transaction (ie all the people and the boat are in Maryland) they may be inclined to ignore mere words on a page. For a high-value vessel, where the savings under the cap are significant, it is highly advisable that advice of counsel be sought to be certain that the benefits of the cap will be achieved.
Good Luck!
Dirk Schwenk