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  #1  
Old 01-17-2010
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Move boat to Maryland: Did you pay excise tax?

This thread is a re-start of another similar thread because I would like a more descriptive title to solicit your experience with moving a boat into Maryland waters.

I am planning to purchase a boat in the near future. If there were not tax considerations, I would moor it in Essington, PA in the Delaware River for the first year, and probably move it to the Chesapeake Bay in Maryland in 2011. Unfortunately I have learned that there is a very real risk of paying 11% tax in doing so: 6% sales/use tax to PA shortly after purchase, and another 5% excise tax to MD when I relocate there.

I'll explain below what I have learned so far, but I am interested in hearing others' actual experiences with this. If you owned a boat outside Maryland and moved her into MD:
  • What state(s) was she in before Maryland?
  • How much tax had you paid to the previous state(s)?
  • How long was she in the prior state(s)?
  • How much did you have to pay to MD upon relocating there?
  • What documentation did you have to provide to legally avoid the tax?

There is quite a bit on the web about this, but as usual the answers are not 100% clear. Maryland covers the subject on their DNR website:
Quote:
§8-716(f) of the State Boat Act allows reciprocity credit for excise or sales tax previously paid to another jurisdiction if:

* The vessel was formerly titled or numbered in another jurisdiction; or
* The vessel was formerly federally documented and principally used in another jurisdiction; and
* The present owner paid a sales or excise tax on the vessel to the other jurisdiction (proof required – validated receipt, etc.); and
* The jurisdiction to which the tax was paid would allow an equivalent exemption or credit for vessel excise tax formerly paid to the State of Maryland.
So the key question would seem to be whether MD and PA have reciprocity with each other. Pennsylvania's Boater Registration FAQs address the topic this way:

Quote:
Pennsylvania State Sales Tax: Sales tax is six percent (6%), seven percent (7%) for residents of Allegheny and Philadelphia counties. Payment of sales tax (or proof it has been paid) is required before any motorboat can be registered or titled. Credit may be given for tax paid in another state. (emphasis added by me)
Note the use of the weasel word of "may." Furthermore, PA has an online document that states that they grant reciprocity for sales tax on "Property Except Vehicles." Of course, this document (which is targeted primarily at passenger cars) begs the question of whether a boat is a vehicle. If so, there is no reciprocity. If not, there is reciprocity.

Pennsylvania's Department of Motor Vehicles does not register boats - their Fish & Boat Commission does. Their F&BC website addresses the issue in this equally weasely way:

Quote:
However, there may be a few cases where a person registering a boat does not pay Pennsylvania state sales/use tax at the time of registration. The person registering the boat may not believe he or she owes sales/use taxes because, for example, he or she paid them at the time of purchase some years ago. In such a case, the registration can still be completed. The applicant should submit sales/use tax information using a form provided by the Commission. The Fish and Boat Commission will then process the registration and issue the registration certificate and decal.

The Commission will forward the sales/use tax information to the Pennsylvania Department of Revenue, which will review it and determine whether any sales/use taxes are due and owing. If the Department of Revenue notifies the Fish and Boat Commission that a holder of a boat registration has not paid required sales/use taxes, the registrant may not be able to renew his/her registration when it expires.
In other words, you apply for registration first, and then throw yourself at the mercy of the Department of Revenue who makes a decision after-the-fact. I can only guess how Maryland interprets this - I'll have to try to call tomorrow.

Maryland has been notoriously hard-line about their excise taxes. Two notable cases in 2005 dealt with this - Schwartz vs. DNR and Kushell vs. DNR. They both make for interesting reading. Click here for an interesting summary. The Kushell guy had owned his boat in California for 10 years before bringing it to MD, and they nailed him for taxes. It was not clear from the summary whether he had paid any taxes in CA. (he won) The Schwartz guy left his boat in MD for repairs and got nailed for taxes even through MD had a specific exclusion for repairs (he lost, but the court asked MD to rewrite the law).

Finally, it seems that the legislature was getting a lot of complaints from boat dealers and repair companies about losing business. People were becoming scared to bring their boats into Maryland for transient dockage or repairs. So they drafted emergency legislation in 2006 to deal with this:

Quote:
SB316 – Department of Natural Resources – Vessel Excise Tax – Principal Use
This Departmental bill is an emergency bill that clarifies that the excise tax applies to vessels used principally in the State, despite the owner’s intention of where the vessel would be principally used at the time of purchase. Except under specified conditions, an excise tax is levied at the rate of 5% of the fair market value of a vessel on the issuance of every original certificate of title required for a vessel; the issuance of every subsequent certificate of title for the sale, resale, or transfer of the vessel; the sale within the State of every other vessel; and the possession within the State of a vessel purchased outside the State to be used principally in the State. The “state of principal use” is defined in statute to mean the state on whose water a vessel is used most during a calendar year. The Department historically has applied a vessel excise tax on vessels that are purchased outside the State and used in Maryland the greatest percentage of a calendar year.
The bill also exempts from the vessel excise tax the possession within the State of a vessel for a period of up to one year if the current owner is a member of the armed services and is serving on active duty in the State. This provision mirrors what is currently available for motor vehicles in the Transportation Article.
Finally, the bill also copied the current provision of reciprocity for the vessel excise tax into this section of the law. The bill has become effective as it has already been signed by the Governor.

SB317 – Vessel Excise Tax – Exemption – Vessels Taken Out of State
This Departmental bill came out of cooperative interim discussions with DNR’s Boat Dealer Advisory Committee. This bill codifies the current DNR form B110. The bill releases a boat dealer from the responsibility of collecting the vessel excise tax when the purchaser certifies that the principal use will be established in a state other than Maryland. The exemption applies if the vessel is purchased from a licensed dealer, the issuance of a title is not sought or required, the vessel is not used or to be used in the State, the vessel is duly registered in another jurisdiction within 30 days of purchase, and the dealer and the purchaser execute an agreement certifying the state of principal use for the vessel which is filed with DNR within 30 days of purchase. The bill becomes effective June 1, 2006.

SB318 – Vessel Excise Tax – Family Transfers – Documented Vessels
This Departmental bill also came out of cooperative interim discussions with DNR’s Boat Dealer Advisory Committee. The bill establishes an exemption from the vessel excise tax for federally documented vessels transferred between immediate family members, so long as the vessel has a valid use sticker issued by DNR. “Immediate family”, for purposes of the family exemption, is currently defined in DNR regulations as a spouse, son, daughter, mother, father, sister, brother, grandmother, grandfather, son-in-law, father-in-law, mother-in-law, daughter-in-law, grandson, granddaughter, stepfather, stepmother, half-brother, half-sister, stepson, stepdaughter, and persons so related by virtue of adoption. The law allows for an exemption from the vessel excise tax for vessels that are transferred to immediate family. However, because the chain of ownership on a federally documented vessel is handled by the United States Coast Guard, the taxable event upon which the gift exemption is based cannot be applied to federally documented vessels. The bill becomes effective October 1, 2006.
While new legislation would usually clarify the situation, it can also make prior court rulings (like Schwartz and Kushell) irrelevant.

So I'd like to hear how all of this has translated into actual experience for the users here.

Please note: I am not a lawyer, but maybe I should play one on TV.

Last edited by TakeFive; 01-20-2010 at 10:06 PM.
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  #2  
Old 01-17-2010
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FYI, here is what HerbDB wrote about this topic over on the other thread:

Quote:
Originally Posted by HerbDB View Post
You do need to be careful how you register your boat. I live in PA and have a documented vessel that is registered and kept in Maryland. I pay a small amount for a Maryland use sticker every two years. I also paid sales tax to the state of Maryland when I bought it.

The state of PA came after me a year or so later wanting a 6% "Use Fee" plus penalty and interest.

I had to prove to them with letters from the marinas in MD and my insurance paperwork showing where I kept it. I did not have to pay the Fee, but they warned me that if the boat was ever in the state of PA for more than 24 hours they would come after me again.

That warning was from the tax people stating the 24 hour part, but I could never find that in writing elsewhere. The boat registration paperwork says you owe it after 30 days. I think the issue is residency.

They did not care what amount of tax I had paid to the state of MD.

This is what PA says about taxes paid to another jurisdiction (taken from the back of the application). The sticking point for the exemption is your state of residence.

7. Boat purchased out of state and registered, by a nonresident applicant for registration solely for use in Pennsylvania as a tourist or vacationer. (Exemption is not permitted if applicant is a resident of Pennsylvania or it boat was originally purchased in Pennsylvania.)

Now, here is the part I would be worried about. Maryland does not recognize taxes paid to jurisdictions that don't reciprocate. This is a quote from the Maryland regulations.

§8-716(f) of the State Boat Act allows reciprocity credit for excise or sales tax previously paid to another jurisdiction if:

The vessel was formerly titled or numbered in another jurisdiction; or

The vessel was formerly federally documented and principally used in another jurisdiction; and

The present owner paid a sales or excise tax on the vessel to the other jurisdiction (proof required – validated receipt, etc.); and

The jurisdiction to which the tax was paid would allow an equivalent exemption or credit for vessel excise tax formerly paid to the State of Maryland.


That last item might keep you from getting credit for PAs tax monies when you go to MD. I would get something in writing before I made any assumptions.

I just took the easy way out an vowed to keep out of PA. The Delaware River is lousy sailing compared to the Chesapeake anyway. If you are buying an expensive boat, not getting this right could cost you a lot of money.


Don't forget that the same thing applies to your dingy if you use a motor on it. Maryland is big on enforcement of dingy registration.
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Old 01-17-2010
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SAVE YOUR PA TAX RECEIPT!!!!! Maryland charges 6% but gives a credit for tax paid to another state. That is, if you paid 5% somewhere else you only owe the difference (i.e. 1%) to Maryland.

Call them up and ask them.

Maryland Department of Natural Resources - Boating

Or look here

Boating Law - Boat Tax - Maryland Boat Tax 101
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Old 01-17-2010
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Quote:
Originally Posted by sck5 View Post
SAVE YOUR PA TAX RECEIPT!!!!! Maryland charges 6% but gives a credit for tax paid to another state. That is, if you paid 5% somewhere else you only owe the difference (i.e. 1%) to Maryland.

Call them up and ask them.
I will call after the holiday. But it appears that Maryland only gives credit if the other state would give reciprocal credit. So I also need to call PA and ask them a totally hypothetical question on behalf of a fictitious Maryland residant - and try to get their answer in writing.

Last edited by TakeFive; 01-18-2010 at 01:47 PM.
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Old 01-18-2010
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Here is a possible alternative to your plan that will work. You could keep the boat in Riverside, NJ and still use it on the Delaware. Pay the NJ 5% tax when you buy the boat. Then when you move to MD, you can pay the extra 1% and register with them.

I actually did this back in 1997 and I had no problems with taxes. This is the first time the state of PA came after me for a "use fee". I bought another boat in 2002 in MD and paid taxes on it there and they came after me again. I think they scour the Coast Guard data base of Documented vessels for owners living in PA.
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Old 01-18-2010
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Quote:
Originally Posted by HerbDB View Post
I think they scour the Coast Guard data base of Documented vessels for owners living in PA.
FYI, I can confirm New York State also does this - they sent me a letter asking to see proof of taxes paid to NY; I had purchased the boat in CT and had it documented. Fortunately I was able to supply the requested proof.
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Old 01-18-2010
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Does this apply if the vessel is being re-titled to place it in a trust?

Documented vessel, revokable living trust.

If so, I would have to un-document the boat, transfer the title to a family benificiary before I die, and then it could be re-documented.

All of this assumes my daughter would still let me take it sailing!
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Old 01-18-2010
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Typically, MD and PA have a reciprocal relationship. The reality is that reciprocity is done on a "state by state basis" and although the answer rarely "officially" changes the practical ease of taking the exemption can vary based upon the relationship between the vessel tax enforcement administrators. I have heard of one state bureaucrat giving a different state's bureaucrat a hard time over reciprocity and an individual taxpayer has been caught in the middle. Remember that it is all about money and which state keeps the tax dollar. Budgets are tight all over. There is an organization which tries to smooth over some of these common issues and you may find their site useful. It is the National Association of State Boating Law Administrators.

As for PA and MD in particular, they have always had a good relationship. This can be a real blessing on one hand but on the other it is a huge problem for the vessel owner. When the vessel tax officials are "too chummy" they have one another on speed dial. If you escape tax in one state they call their compatriot who often goes for penalty and interest.

You should also consider whether your vessel may be a good candidate for offshore flagging. It is not as expensive as people think. Depending upon a number of circumstances, the break point for cost savings is usually with a purchase price in the $150,000 to $200,000 range. There is info available on a site that I am not allowed to post due to forum rules.

Since you have two threads I will post the answer in both.

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Annapolis, Maryland 21401 Fax: (443) 716-4405
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Old 01-20-2010
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I have gotten clarification from both PA and MD's boat registration offices, and I have their assurance that I will have no problem moving a boat from one state to the other (either direction). I will pay sales tax to whichever state I choose to moor my boat for the first year, then be able to move it to the other state with no payment (if the taxes are the same) or only pay the difference if moving to a more expensive state.

They insisted that the horror stories I have heard all involve boat owners who had attempted to evade paying any taxes to any state, and were therefore hit with penalty and interest many years later.
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Old 02-02-2010
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Documented vessels in Delaware

My question deals with documented vessels purchased in Delaware and Documented. If the vessel is kept in Delaware for more than 183 days is it subject to the Maryland Excise tax if it sails in Maryland waters for 150 days?
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