If the boat floats – Wacky Tax Wednesday

Boating season is underway in many parts of the country, including Louisiana and Washington. Before a boat can be launched, it must be registered with the state and applicable taxes and fees must be paid. Effective April 1, 2016, boats and vessels sold by individual owners (as opposed to a dealership) are subject to Louisiana sales or use tax.

Anyone wishing to register a homemade boat with the Louisiana Department of Revenue must provide receipts for the boat’s building materials at the time of inspection. If the receipts indicate that no sales tax was paid on the materials, the owner must remit use tax to the department.

Flashback

Learning this called to mind a man my husband and I once discovered in a dumpster that was in our driveway, full of building debris. He was rooting around, he said, looking for good materials for the boat he intended to build.

It’s not every day you find a man in your dumpster. It’s rarer still to hear that he plans to use wood scraps to construct a boat.

We ejected him from the dumpster, but over the course of the next week or so, we watched him carry away materials that were in good enough shape to be placed on the corner with a “FREE” sign. Eventually we learned that he had built and launched his boat, which promptly sank. Thankfully, he came to no harm.

How to tax scraps

It turns out that it’s not so rare for a state to have sales and use tax policies about homemade boats. Here in Washington, it isn't necessary to provide the Department of Revenue with receipts showing that tax was paid on materials used to construct a boat, as it is in Louisiana. However, according to the department’s Vessel Tax Guide, “You must complete a Declaration of Value if the most recent purchase price of your boat is unknown, your boat is homemade, or you acquired the boat by trade, lease or gift. The declared value is subject to review.” If sales or use tax wasn't previously paid and the vessel isn't otherwise exempt, then use tax must be paid on the declared value of the vessel.

Would the Washington Department of Revenue insist use tax be paid on a vessel constructed from free building scraps? Would the Louisiana Department of Revenue?

It’s a moot point, of course. The man who built a boat from wood scraps would probably not have registered his vessel, even had it floated. I’m sure it would never have crossed his mind. Wonder what the tax man would say about that?

Auditors are most likely to pursue the sales or use tax that some people go to great lengths to avoid paying on expensive vessels. For example, investigators patrolled New Jersey's waterways for years in search of boats on which neither sales nor use tax was paid, and the New York Department of Taxation and Finance regularly checks that tax has been paid on vessels moored in New York State. Now that it has come to light that a certain political candidate might not have paid sales or use tax on a yacht costing nearly $30 million, state auditors may turn their eyes there.

Sales tax automation simplifies sales and use tax compliance so people have more time to do what they love (like boating), not tax.