Luxury Tax Update: Take Action Now

Governor Paterson's proposed 5% tax on boat sales over $200,000 remains on the table, and if you're a NY state resident, now is the time to contact your state representative (see contact info below).

As I've written here before, this tax is only going to take money out of the state's coffers by discouraging yacht sales. That means less work for boat yards, less work for manufacturers, the list goes on. Here, courtesy of Howard McMichael, are six reasons why the tax is a bad idea:

1. The previous federal luxury tax in the early 1990s of 10% proved people stop buying boats when taxes drive the price beyond what they are willing to pay. It was repealed because it failed miserably.

2. When a buyer adds the luxury tax to the sales tax the effective tax is 12-13.6% depending upon where the buyer lives. Buyers will wait until it is repealed or simply invest their money in competing lifestyle experience.

3. The luxury tax will eliminate sales that would produce sales tax revenue causing sales tax revenue to decrease by more than the amount collected by a luxury tax producing a NET LOSS of taxes.

4. New boat owners spend more money maintaining and upgrading their boats than do people with old boats. This directly affects thousands of employees and hundreds of businesses in the marine service industry thru-out the state.

5. These same businesses have a vested interest in improving water quality for recreational boating and fishing. Investment in their infrastructure and water filtering will be curtailed due to lack of profits from boat sales.

6. Many new boat sales companies have 2007 and 2008 inventory in stock with bank loans running out. This inventory has caused large companies like Brunswick to curtail 2009 manufacturing. If existing inventory has an additional 5% added to the already distressed sale price the inventory will bankrupt many businesses. Sort of like telling General Motors you are taxing car sales to help them move product.

Find your State Assembly person quickly via zipcode:
http://assembly.state.ny.us/mem/

Assemblyman George Latimer (Westchester County):
LatimG@assembly.state.ny.us
518-455-4897 Albany office

Suzi Oppenheimer (37th Senate District)
oppenhei@senate.state.ny.us
(518)455-2031 Albany office

Luxury Tax Update: Not Much to Report

Governor Paterson's proposed 'luxury tax' is still being debated in the state assembly and there is very little in the way of updates. At this point it seems unlikely that the budget will be passed by April 1. The last recorded action on the bill was on 1/21/09, when the assembly amended and referred it back to the ways & means committee. It would be helpful to know if the luxury tax portion of the bill was amended, so that we could all get on with buying our luxury cars, yachts and planes.

You can keep up-to-date on any specific bill at the website for the state assembly:
http://assembly.state.ny.us/leg/. Enter A00160A for the assembly bill number, S00060A for the senate bill number, and thank your 8th grade civics teacher.

Finally, McMichael's Sales Coordinator and all-around detail guru Tish Fontanella will be in Albany next week, and will have the oportunity to get some clarification on the status.

Tax Information, Part II

Last month, Governor Paterson put forward his plan to overcome the multi-billion dollar budget shortfall that New York State faces over the next few years. The plan grabbed a lot of headlines for the proposed "Obesity Tax" on non-diet sodas, but that isn't the only new tax boaters might have to watch out for: the Governor has also proposed an additional 5% sales tax on boats over $200,000.

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.

Tax Information for LIS Boaters

If you do any boating in NY state waters, there are some important developments in how the state is collecting taxes that could effect you, no matter where your boat is registered.

It is very common for residents of New Jersey and Connecticut to keep their boats in New York, and in this situation owners are expected to report to the NY state DMV and pay the difference between the sales tax they already paid (in, say, Connecticut) and what the sales tax would be in New York. In practice, very few owners did this or were even aware that this was required, and the state made little effort to chase down the extra revenue.

But the massive revenue shortfalls have motivated a crackdown, and the state has begun auditing marinas, yacht clubs and even boatyards. If they find a boat that hasn't paid sales tax in NY state, the owner receives a bill that includes interest and penalties. It's doubtful that they will catch everyone this way, but if they catch you it will be an unwelcome surprise. **Note that owners who have responded proactively to this bill have, in some cases, been able to negotiate down some of the penalties.

Stay tuned for an update on Governor Paterson's additional 5% "luxury tax" on yachts over $200,000.