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Previous owner wants property tax credit?

6K views 64 replies 31 participants last post by  TakeFive 
#1 ·
Hey guys, so I recently upgraded and took possession of a 1985 CS36 Traditional. Such an awesome boat and I'm beyond thrilled with it.

Question is the previous owner just contacted me and is asking me if I would split the property tax he owes on it for the 2013 fiscal year. He says since he owned the boat for 6 months and then I took possession of it and will own it for the remaining 6 months in the fiscal year that it would be fair if I paid half of the tax the county is charging him. I moved the boat after I took possession to a different county. (San Mateo County in California). They most likely will not charge me for the remainder of this year as it seems they assess and tax owners Jan 1.

Should I pay the previous owner? Is this fair? Seems rather unconventional so I'm wondering if anyone else has ever dealt with this.
 
#3 ·
I just received my tax bill a week or two ago and it says clearly that the person who owns the boat on Jan 1st is responsible for said property tax. It is up to you if you want to help him out.(apx 1.5% of the value of the boat) When you bought your house did the previous owner ask you to share the cost of his property tax?

Brad
Lancer 36
 
#4 ·
You could be nice and offer him something, but he sold the boat after paying this year's tax and didn't put it in any sort of contract, so you are not obligated.
 
#13 ·
Taxes apply to the fiscal year running from July 1st through the following June 30th and are payable in advance, by no later than August 31st of the then current fiscal year. Taxes are assessed as of a valuation date of the preceding January 1st and are payable for the impending fiscal year by the owner of record as of that date. Under normal circumstances, a purchase and sale agreement should include provisions for the proration of taxes, slip fees and the like as of the sale date. If the sales agreement did not make any mention of tax prorations, a buyer could reasonably assume that the sale price was net of tax although the omission may have been an error on the part of the party that drafted the sales agreement (if the Seller) or an intentional omission (if, perhaps, the Buyer). If a Broker arranged the sale and erroneously omitted the tax proration, the liability would be a matter between the broker and the Seller.

As a practical matter, the Buyer may need the Seller's assistance with matters concerning the boat during his/her initial ownership considering the Seller's experience. Given that, it would behoove the buyer to make an accommodation although he/she might not have a legal obligation to do so. Sometimes, if not almost always, it pays to do "the right thing" and if the omission of a tax proration provision in the agreement was simply an error, doing the right thing might include paying a portion of the tax if not the entire amount considering that in this case the buyer will have owned the boat for at least 11 of the 12 months of the '13-'14 fiscal year for which the Seller is being taxed.

Information can be found on the subject at Unsecured Personal Property Tax.

FWIW...
 
#8 ·
Yeah I figured I'm not under any obligation to pay him legally. It's more of a what's the ethically correct thing to do in this case? It is an unexpected expense which I am not prepared for. I also wouldn't and won't ask the new owner of my old boat to reimburse me once I sell it. I've never owned real estate so I don't know how it works there.

Really I think he should get a credit from the county, but that's def not gonna happen.

Another thing to consider is that he probably got some free time on the front end when he bought the boat. If I pay then I will have to ask the next owner to reimburse me when I sell it to be even.
 
#12 ·
It is an unexpected expense which I am not prepared for. I also wouldn't and won't ask the new owner of my old boat to reimburse me once I sell it.
It doesn't have to be confrontational. What you said above is an honest answer.

After all you didn't write California's property tax laws.
 
#19 · (Edited)
The personal property taxes billed on July 1st, payable without penalty by no later than August 31st, are for the period July 1st, 2013 through June 30th, 2014. From your post, I'm guessing you'll have owned the boat during at least 11 out of 12 months of that period hence the tax liability is, logically, yours not the Sellers although he/she may have mistakenly omitted a tax proration from your sales agreement.

Frankly, Charlotte, I don't give a dam_, but I do know that what goes around tends to come around, sometimes in spades, and considering that the cost to you, will only be a few hundred dollars--and if you can't afford that you certainly have some surprises coming as to the cost of yacht ownership--it might just be worth you paying a little something to build up a few good will chips. Or not.

As I said, Frankly Charlotte, I don't ... but I do know what a fair minded person would do, at least in my neck of the woods (which thankfully, is no longer California although my forbearers would surely be scandalized at the notion).

Here Homer Nods...
 
#11 ·
Your business transaction has ended. He's asking for a charitable contribution.
It's up to you to decide if you're feeling charitable. Also, If allowable, He'd also get to take the deduction on his federal income tax return.

From california:

4.I sold my personal property (boat, aircraft, machinery, or equipment) after January 1. Shouldn’t the new owner be required to pay the property tax?
Even though you may no longer own the property, you are still liable for the taxes because you owned it on the lien date. When taxable personal property is sold subsequent to the lien date, it is the duty of the seller to pay the taxes on the property for the ensuing fiscal year.

5.Can the assessor prorate assessments or taxes between the seller and buyer of taxable personal property?
No. The assessor must annually assess all property in the county to the person owning it on the lien date. There is no provision in the law that allows the assessor to prorate assessments between the buyer and seller of taxable personal property that is sold in the ensuing fiscal year.
 
#15 ·
Paying your own taxes is bad enough much less paying someone else's. :eek: Especially when you figure out what they're using the taxes to fund. I can almost guarantee you it has absolutely zip zero nada to do with boats. Aircraft I've owned in my state go to education funding. Makes sense to me. :confused:
 
#18 ·
Real estate taxes are customarily divided at closing, but ONLY if said pro-ration is called for in the contract.

There is no such thing as thinking of something you forgot to negotiate after closing. If I was the seller, I wouldn't have the gumption to even ask you for it.
Yes, I don't know much about tax laws in the US but purely as a common sense thing, there is no way I'd pay that.

So I had the boat anti-fouled a month before you bought it so given that I only had a month and you're going to enjoy 18 months of anti-foul benefit, can I send you an invoice? Yeah sure of course you can. :rolleyes:

I wouldn't have had the balls to ask for something like that - I bet he didn't call you to discuss? More like a letter in the mail?
 
#23 ·
I wouldn't split it with him. As has already been pointed out, it wasn't brought up when you purchased the boat, and he likely received the benefit of the prior owner having already paid the tax when he bought the boat.

Frankly, I think he has a lot of nerve to even ask.
This is the main reason why I lean towards not paying anything. He likely had the benefit of some months of not paying taxes on the front end, just as I will surely have paid for some months that I won't use when I sell the boat. Seems like that is how the cycle goes. If I pay now, I feel like I'll be getting shorted in the long run.

I wouldn't ask that a buyer pay those taxes especially after the fact and I do think that is in bad taste. I surely wouldn't go back to ask that he pay for all those little things that I missed in the survey/inspection/sea trial.

I appreciate all the responses. Gives me some good perspective, thanks.
 
#21 ·
Dear PO

Thanks for contacting me regarding sharing the taxes. I would be happy to pay half the taxes to help you out. I totally understand how in the confusion of the closing something like this could be overlooked. In fact it happened to me too. At the closing I totally forgot to ask for your nice dinghy and new outboard and now I am in desperate need of them as we plan on doing some anchoring out.

Where would you like to meet to exchange my check for your dinghy and outboard.
 
#25 ·
Interesting topic........

I'm not familiar with this particular tax, but I have gleaned a couple of things from this exchange.

If I'm understanding correctly:

The previous owner gets a tax deduction for the for the taxes he paid (the full amount), but you get no deduction for any amount you reimburse, since you are not the person who is on record as having paid the taxes. If you are to reimburse at all, it seems like it should be only half the amount remaining after the previous owner's deduction is subtracted.

BTW, how much money are we talking about here?
 
#28 ·
Thiis could get touchy, The tax is on the property ( the boat ) I think martime law veiws a boat as a person, so any tax or tax lien will follow the boat, not the previous or even the current owner, but the boat itself.
 
#29 ·
The buyer negotiated a price based upon all facts offered by the seller. That price could have been different, if the seller requested reimbursement of pro-rata taxes. Said differently, the price the buyer agreed to could be argued to already include the value of those taxes, as the buyer may have otherwise paid less. You just can't go back and change the facts.

Even more compelling to me is the fact that the buyer will never owe taxes to that county the seller pay them to. Say the buyer was from out of state, would you even agree to a contract where you paid taxes you would never owe or benefit from?
 
#30 · (Edited)
This guy screwed up and forgot to put this in the contract. So you would appear to be under no obligation to pay.

EXCEPT FOR ONE PROBLEM: If he fails to pay, the taxing jurisdiction will put a LIEN ON YOUR BOAT.

In my state, the taxes are prorated for all real estate transactions. And IIRC it is not covered in the purchase contract, it is covered in the FHA good faith settlement agreement because it is a standard practice that everyone follows. So if this transaction was a house, you'd be on the hook for almost all the tax since the taxing year starts July 1. Under that scenario, his offer of a 50-50 split is still a good deal for you.

So contractually you would not appear to be on the hook (though I'm not a lawyer). But given the crap you'll need to go through having a lien placed on YOUR boat if HE doesn't pay, I'd take him up on the 50-50 split, and personally go with him in person to make sure he pays the bill instead of just pocketing your money. Try to write your check directly to the taxing authority (not to him), and see if there is some way to get them to give you a receipt for your part, so you can take a tax deduction (if one is actually available for your tax situation).

FWIW, this is one of those things that a broker should know to take care of, and how he earns his commission.

Also, don't forget about that thing called karma. It does have a way of coming back to bite you later.
 
#33 ·
Great points, Minnewaska.

To the other chap talking about a lien being filed on the boat... couldn't this be cleared up with the county with your bill of sale or title showing your date of purchase? Granted, nobody wants any kind of lien on their property, but there wasn't a lien on the boat when he bought it. The tax and any penalties for tardy payment should fall squarely on the previous owner.

Poster, was there a lien on the boat for these taxes when you bought the boat?
 
#38 ·
...To the other chap talking about a lien being filed on the boat... couldn't this be cleared up with the county with your bill of sale or title showing your date of purchase?...
Possibly. Hire a lawyer and you can clear up almost any problem. It's just that as a practical matter it may be less expense to split the tax bill now to avoid the possibility of a lien placed on his boat later. OP can take his chances, but it may be a pay me now or pay me later situation.

If OP used a contract that has language to cover this, then there's an argument to follow the contract. But if a broker was involved this probably would not have happened at all, so I have a feeling that the YBAA agreement is irrelevant. Perhaps OP can tell us what language was in his purchase agreement.

But for all you guys advising to play hardball, remember that the seller might just be "holding the stronger hand" in this case. Of OP gets the seller mad, and the seller decides to play hardball by simply not paying the bill, it's the OP who may end up with a lien on his boat. This is not a legal opinion, just my hypothesis of a worst case scenario.
 
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#35 · (Edited)
The standard YBAA contract has the following language:

8. SELLER'S REPRESENTATIONS: The SELLER warrants and/or agrees as follows:

B. That the YACHT will be sold free and clear of any mortgages, liens, bills, encumbrances, or claims whatsoever.

D. To pay any and all duties, taxes, fees, or other charges assessed against the YACHT by any governmental authority prior to the closing, to hold harmless and indemnify the BUYER and BROKERS against any claims or actions for such fees, and to provide validation of such payments at the closing, upon written request by the BUYER.

(emphasis added)

I'm curious whether these parties used the standard contract, however, it makes common practice pretty clear, doesn't it?

Seller does not owe these in common practice, let alone if the seller did not negotiate them prior to purchase.

Real estate has a different common practice, because real estate can't be moved out of the jurisdiction. It's not applicable.
 
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