Boat-Tax Myths That Can Land You in Hot Water - find out the truth behind these myths

Marine-Tax Myths That Can Land You in Hot Water Photo

Boat-Tax Myths That Can Land You in Hot Water

When taken as fiction, myths make terrific stories. They capture the human capacity for imagination, creativity, and inventiveness. The trouble arises when a myth is taken for fact and acted on accordingly. Acting on faulty information can be dangerous; and in the case of boat purchases, acting on tax myths can be expensive.

If you are looking at your next purchase of a boat, yacht, sailboat or another high-ticket item (such as an aircraft or vehicle) and you’re wondering if there is actually a legal way to avoid sales and use tax on these purchases. Read my full article here, check out my other articles on my website covering how to legally avoid sales and use tax for boats, planes, vehicles and more. If you are uncertain if your purchase qualifies and want to save thousands of dollars on your purchase contact me first: talston@aeromarinetaxpros.com. I can tell you if you qualify before you even spend a dime.

I also hope you’ve been following my newsletter updates. With each I cover material that will help you make informed decisions when purchasing high priced aircraft, vehicles, boats and more.

So, please read on. And get in touch if you feel like a chat. I’m always willing to talk.

What you think you know can hurt you...

•“All you have to do is register the boat outside of California and no tax is due.”
•“If you register it anywhere outside of California the tax is avoided. That’s the long and the short of it.”
•“Dock the boat in Ensenada for 90 days and the tax is avoided completely.”
•“All you need is a resale number to not be charged tax.”

These myths come in the form of well-intentioned advice, often from a reliable source: a brother-in-law, yacht broker, or even an attorney: individuals who genuinely believe what they are saying to be true. Myths such as these usually originate through rumor (Uncle Jack did it this way), misunderstanding (I read the regulation—it’s perfectly clear!) and misplaced confidence (I heard it from a BOE representative); and are perpetuated by the belief that if enough people believe it, it must be true.

So what’s the problem?

Even before Pinterest, YouTube, and WebMD unleashed the DIY beast, some of us were operating with an ‘only-call-for-help-once-you’ve-broken-it-trying-to-do-it-yourself’ philosophy. Whether it’s putting together a bookshelf, training for a marathon, or interpreting complicated tax law, we like to think we know what we’re doing. The problem is that ‘once-broken, twice-the-cost’ is often the consequence of this philosophy. And in the case of tax law, once action has been taken, it can be too late to repair the damage—resulting in an expensive and unnecessary tax liability.

Case in point...

One of the most prevalent watercraft tax myths that has been running rampant for years goes something like this: “As long as the purchaser took delivery offshore, and then sailed to Mexico for a continuous period of at least 90 days, the transaction would be exempt of sales tax upon return to California.”

This is the most dangerous form of myth…one that is based on a partial truth. A cursory reading of Regulation 1620 gives the impression that this is an irrefutable truth. However, a recent ruling by of the BOE should serve as a red flag for all watercraft buyers.

In their ruling, the Tax Counsel did not dispute that the boat had been delivered offshore or that the buyer had passed the 90-day test outlined in Regulation 1620. Even though the buyer had fulfilled the requirements set forth, the transaction was held to be taxable.

So what went wrong?

In short: the buyer got his tax advice from his friends and the people involved in the transaction. People who, though well intended, did not know what a qualified taxpayer’s representative would have known: that a simple change in wording on the contract, along with a signature, was the difference between exempt and expensive. In this case, the buyer’s failure to procure the same kind of professional help when it came to California taxes as he had in brokering the sale, cost him dearly.

How can you keep out of hot water?

Save the DIY for refinishing your grandfather’s humidor and consult a professional when it comes to taxes. With the help of a qualified taxpayer’s representative, a proper strategy—put in place prior to a purchase—can result in a non-taxable event, which will hold up in an audit. Considering the price of watercraft this can save a buyer hundreds of thousands of dollars and avoid the costly hassle of an appeal process with the BOE (which is definitely worth its weight in gold).

 
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by Thomas A. Alston
Mr. Alston is the Founder and CEO of Aero & Marine Tax Professionals. His company has prepared and filed hundreds of tax returns with a 100% success rate. Mr. Alston’s management and tax experience are the foundation and guiding hand for all of Aero & Marine activities. His full-proof system to legally avoid paying sales tax on aircraft purchases has never failed. Aero & Marine Tax Professionals is the premier California sales and use tax consulting firm specializing in the area of Mobile Transportation Equipment (aircraft, vessels and vehicles).

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