Sunsets Upon a Taxable Horizon
As the regional cruising season comes to a close for many pleasure vessels that frequented new destinations beyond their homeports this past summer, boaters in the Northeast now turn their attention to the winterization and storage ritual of bedding down their prize possessions for the next boating season. Perhaps some consider capital improvements in the form of refit or repaint at a marine facility outside their homeport while “laid up” during the winter. While our southeastern mariners, having visited for the summer only, migrate back home and share stories of beautiful Down east skylines at dawn and dusk, cold water lobster, and the quintessential New England charm of a centuries old Inn, all seems calm and wonderful concluding another memorable season of boating for all. We all give pause and reflect on how lucky we are to enjoy our passion for the water and boating.
Several months pass, and as seasonal greetings and mail fill our mailboxes with holiday cheer, then comes a greeting of an official nature from one of the beautiful states you so enjoyed inviting you back, alas not for another recreational visit, but rather for an audit inquiry regarding your taxable presence in such state. Indeed there currently seems to be a real clash between the regional tourist bureau and the state tax agencies in some of these states – this simply can’t be true!
The fiscal economics for operation of all states has come under extreme pressure, and as a direct consequence, state and local taxing authorities now have new incentives to pursue tax collection wherever they can set their hook. The audit investigation process commences with an audit of marinas and repair facilities in which they are required to provide receipts and a list of customers who visited last summer – something as benign as a transient mooring agreement at a visiting yacht club could trigger an inquiry leading to a sales/use tax audit. The audit process is always dogmatic and intimidating in nature, and rarely conducted by someone you might consider to be your friend. A simple explanation by you to the audit examiner that you have no taxable liability to that beautiful state for your yacht will likely widen the inquiry and result in a request for more detailed information. You are at a severe disadvantage being on the frontline of a tax audit as the target is on your back for tax revenue.
We summarize below some common pitfalls and make suggestions as to how best to minimize the potential of a vessel tax audit or inquiry:
- Providing an Audit Examiner incriminating information or facts creating a basis to assert taxable nexus against the taxpayer.
- A Yacht Broker, marina operator, vessel repairer or builder, Dealer or Captain of vessels, and even insurance agents providing private records of a client to an audit examiner from another state under the misunderstanding that they are under a duty to disclose such information to such foreign state taxing authority. Please be aware that the subpoena power of administrative taxing authorities runs only to the borders of their state. The volunteering of records or information of a client and/or discussing a transaction over the phone with an out of state tax examiner are sure ways to lose a client and open oneself to the potential liability of a claim by your now former client. If an inquiry arises for any reason, it is best practice to verify the authority of the request and immediately discuss the matter with your client (and their counsel) before volunteering information to anyone.
- As a vessel owner/operator, you must understand that each of the foreign states you may visit operate under a different set of laws and regulations from your home state; therefore, if you contemplate to spend measured time in such a foreign state, whether it be for pleasure cruising or winter repair, please educate yourself in advance or seek appropriate guidance as to the applicable taxing laws of that state.
- Most frequently vessels owners become passive in their belief of any further tax liability for their yachts beyond their homeport or domicile for registration which will unknowingly engender taxable surprise elsewhere; an educated mariner affords a higher degree of safe passage.
Please contact any of our lawyers by phone or email with any questions or comments.
Bohonnon Law Firm, LLC