Industry divided over impact of Florida sales-and-use tax cap
SuperyachtNews.com speaks to the industry about the success of the 2010 Florida sales-and-use tax cap on boats, but discovers a differing opinion over its impact.…
In a recent discussion with SuperyachtNews.com, Florida Yacht Brokers’ Association (FYBA) spokesman and owner of Bollman Yachts, Jeff Erdmann, revealed that the recent Fort Lauderdale International Boat Show (FLIBS) had shown signs of a gradually increasing fleet of large yachts registered under the US flag. “Not only at FLIBS but also at the Miami and Palm Beach shows,” revealed Erdmann, “I have noticed that if you look down the row of yachts that you’ll see more and more US flags on larger boats at these shows than ever before.” Erdmann believes that the US flag is becoming more appealing, and that the impact of the 2010 Florida tax cap on boat sales could be a contributing factor.
Erdmann was part of the FYBA team that initiated the sales-and-use tax cap on boats. The law put an 18,000-dollar sales-and-use tax cap on boats purchased in or brought into Florida. Prior to July 1, 2010, all boats sold and/or delivered in Florida were subject to a six per cent sales-and-use tax, unless specifically exempt. As a result, buyers of boats sold by Florida brokers were registering and operating their boats outside of Florida in order to legally avoid paying the sales tax.
There is evidence to suggest that the cap has had the desired effect. According to a recent analysis of Florida boat registrations from 2000 to 2012 by FYBA; “The number of 65’ to 109’ yachts registered increased 28 per cent from 807 in 2010 to 1032 in 2012, while the number of yachts over 110’ increased by 7 per cent.” And this is not due to a recovering economy, Erdmann reckons. “The great recession is not over,” he says. “The only reason that those registrations in the larger classes have increased is because of the sales tax cap. We did not see an increase in the number of transactions from 2010 to 2012.”
So has the Florida tax cap encouraged more yachts to the US-flag? “It’s not pushing them away from it,’” Erdmann believes. “What we had before was a six-per-cent unlimited sales tax, so many larger boats would flag foreign to legally avoid it. The cost of that was typically between 9,000 and 15,000 dollars to set up the foreign flag corporation plus an annual cost in the region of 3000 dollars per year. So this has been a competitive alternative to that; by paying the maximum 18,000-dollar tax once, that is it and you don’t have to maintain a foreign flag.”
But Robb Maass of Alley, Maass, Rogers & Lindsay believes that this trend excludes large yachts - those over 300 gross tonnes. "These yachts must 'go foreign' to avoid federal statutes and regulations applicable to boats of that size and the desire to hire foreign crew," explains Maass. "The cap has affected the time spent in Florida waters by U.S. documented or state registered yachts owned by residents of other states. Before, to avoid Florida use tax, the owners of these boats had to keep their boats outside the state, in other US states or territories, for more than 6 months prior to coming to Florida or limit their boats’ time in Florida to no more than 90 days on any one visit or 183 days in any rolling 12-month period. Now, many of these owners have decided to pay the capped tax and come to Florida whenever, and for however long, they wish, resulting in a meaningful increase in spending in the state. All in all, then, the cap must have increased sales and use tax revenues from yachts, given that few owners paid tax when it was 6% of a boat’s purchase price, as opposed to the vast majority who now pay tax with the cap in place, and more yachts are coming to Florida sooner and for longer periods."
Graeme Lord, president of Fairport Yacht Support holds a similar opinion on the subject. “[The Florida tax cap] has been an epic success,” he told SuperyachtNews.com. “But there is no connection to going to the US flag – that is a myth. The vessel must also pay importation duty, or be built in the US, and can then fly any flag they choose. Florida is now getting a smaller percentage of something as opposed to 100 per cent of nothing.”
The industry is divided over whether the implementation of the sales-and-use tax cap, in a state that is the hub of large yachting in the US, has had anything to do with the emerging appeal of the US flag. However, what is evident is that the law has encouraged and increased business in the yachting industry in the state, the primary ambition of those lobbying for the legislation.
Erdmann was part of the FYBA team that initiated the sales-and-use tax cap on boats. The law put an 18,000-dollar sales-and-use tax cap on boats purchased in or brought into Florida. Prior to July 1, 2010, all boats sold and/or delivered in Florida were subject to a six per cent sales-and-use tax, unless specifically exempt. As a result, buyers of boats sold by Florida brokers were registering and operating their boats outside of Florida in order to legally avoid paying the sales tax.
There is evidence to suggest that the cap has had the desired effect. According to a recent analysis of Florida boat registrations from 2000 to 2012 by FYBA; “The number of 65’ to 109’ yachts registered increased 28 per cent from 807 in 2010 to 1032 in 2012, while the number of yachts over 110’ increased by 7 per cent.” And this is not due to a recovering economy, Erdmann reckons. “The great recession is not over,” he says. “The only reason that those registrations in the larger classes have increased is because of the sales tax cap. We did not see an increase in the number of transactions from 2010 to 2012.”
So has the Florida tax cap encouraged more yachts to the US-flag? “It’s not pushing them away from it,’” Erdmann believes. “What we had before was a six-per-cent unlimited sales tax, so many larger boats would flag foreign to legally avoid it. The cost of that was typically between 9,000 and 15,000 dollars to set up the foreign flag corporation plus an annual cost in the region of 3000 dollars per year. So this has been a competitive alternative to that; by paying the maximum 18,000-dollar tax once, that is it and you don’t have to maintain a foreign flag.”
But Robb Maass of Alley, Maass, Rogers & Lindsay believes that this trend excludes large yachts - those over 300 gross tonnes. "These yachts must 'go foreign' to avoid federal statutes and regulations applicable to boats of that size and the desire to hire foreign crew," explains Maass. "The cap has affected the time spent in Florida waters by U.S. documented or state registered yachts owned by residents of other states. Before, to avoid Florida use tax, the owners of these boats had to keep their boats outside the state, in other US states or territories, for more than 6 months prior to coming to Florida or limit their boats’ time in Florida to no more than 90 days on any one visit or 183 days in any rolling 12-month period. Now, many of these owners have decided to pay the capped tax and come to Florida whenever, and for however long, they wish, resulting in a meaningful increase in spending in the state. All in all, then, the cap must have increased sales and use tax revenues from yachts, given that few owners paid tax when it was 6% of a boat’s purchase price, as opposed to the vast majority who now pay tax with the cap in place, and more yachts are coming to Florida sooner and for longer periods."
Graeme Lord, president of Fairport Yacht Support holds a similar opinion on the subject. “[The Florida tax cap] has been an epic success,” he told SuperyachtNews.com. “But there is no connection to going to the US flag – that is a myth. The vessel must also pay importation duty, or be built in the US, and can then fly any flag they choose. Florida is now getting a smaller percentage of something as opposed to 100 per cent of nothing.”
The industry is divided over whether the implementation of the sales-and-use tax cap, in a state that is the hub of large yachting in the US, has had anything to do with the emerging appeal of the US flag. However, what is evident is that the law has encouraged and increased business in the yachting industry in the state, the primary ambition of those lobbying for the legislation.
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