This luxury tax (which would also be applied to cars, planes, jewelery and furs over a certain value) has been implemented before on the national level, with a very negative outcome. The non-partisan tax research group Tax Foundation (http://www.taxfoundation.org/) has a succinct analysis:
Generally, luxury taxes are gimmicks that raise little tax revenue (projected at $15 million for FY 2010-11) while appealing to class warfare sentiment. A 10% federal luxury excise tax imposed in 1990 devastated the yacht industry, and employees thereof. Because yacht sales fell sharply after imposition of the tax, revenues were far below projections. Ultimately, Congress responded by repealing the tax.
The lesson of the yacht luxury tax is instructive: narrow-based taxes are more likely to have distortionary effects than broad-based ones, as it is relatively easy for consumers to substitute an untaxed purchase for a taxed one (e.g., by taking fancy vacations instead of buying a yacht, or by purchasing a used yacht made before imposition of the tax.) By contrast, income and general sales taxes must generally be avoided by earning or consuming less, which are more difficult steps to take.
It seems painfully obvious that this is a tax proposal that will only hurt the state, as consumers will spend their money elsewhere. Circumventing the tax would be as simple as forming an out-of-state corporation and registering the boat there (something your broker can advise you on).
The entire proposal is currently being reviewed by the state legislature, so if you are a New York State resident this could be a great time to call or email your senator. The New York Marine Trades Association is also working to lobby against the proposal, and will be unveiling a website to broadcast their concern. Stay tuned for more details.
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