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Boat Tax 2007 Maryland Overview
Eds. Note: This article was published in the online and on this website in, December, 2007. It is reproduced with permission.
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Maryland's
winter of discontent
(because that's when the taxman comes)
Yes, its that time again, the winter ducks arrive, the cold fronts roll in, and
Boat Tax Enforcement Division on the Maryland Department of Natural Resources
wraps up its seasonal investigations and issues vessel tax assessments. You will
know it if you get one, it says "Assessment of Tax" and it's printed on colored
paper. It notifies you that you have 30 days from its issuance to appeal or it
becomes final-and you do not have much of a remedy if you do not agree with its
contents. Do not dawdle, the 30 days is a real deadline.
For the uninitiated, this paper can be quite a shock. It is the culmination of
an investigation which typically includes monthly surveys of your boats
location, an analysis of its fair market value, and an investigation into its
ownership, including the ownership of any corporation that may it may be titled
to. For a $100,000 boat, the assessment is an unexpected bill for 5 percent of
the value ($5,000) plus a 10 percent penalty ($500) plus interest running at 18
percent from the date that the boat became taxable, up to three years.
Interest can easily eclipse the amount of the penalty, and so the bill can
easily reach and surpass $6,000 on a $100,000 boat. Scaling up, the bill on a $1
million boat can easily reach and surpass $60,000. If for any reason the DNR
believes that tax was avoided on the basis of fraud or gross negligence, the
penalty will be 100 percent of the tax, and so the total assessment will be
growing toward $12,000 or $120,000.
Most boaters will not face such an assessment because they will have paid sales
tax on their vessel at the time of purchase or they will have paid tax when they
registered and titled the vessel. Such is the case for a runabout purchased from
a Maryland dealer or titled with Maryland. There are, however, lots of boats
that are not subject to sales tax at purchase, including boats purchased in
non-tax states (i.e. Delaware or Rhode Island), boats purchased abroad,
home-built boats and some commercial vessels.
If those boats are federally documented, they are not subject to state titling
laws, and they may not have been legally obligated to pay tax. This is the
favorite bait of boat tax enforcement: the federally documented vessel that has
not previously paid sales or use tax to any state. The second favorite bait? The
boat that is registered to a non- or low-tax state such as Virginia, but that is
principally used in Maryland. If you are in one of those categories (and you
have not yet fallen asleep) you should definitely continue reading.
Maryland taxes boats in three main instances, all of which are subject to
certain caveats and exceptions. Those instances are:
1) a boat that is purchased in the State;
2) a boat that is titled in the state; and,
3) a boat
that is principally used in the state during any particular calendar year,
assuming that it is in the State more than 90 days in that year.
The first item is pretty clear. If the money and the boat change hands in this
state, it's a Maryland purchase, if parts of the transaction take place out of
state, well, it depends. The second item is clear. If you apply for a Maryland
title (or you are required by law to do so), tax is due. The third item is the
one that causes the most consternation for boaters -Principal Use.
Under Maryland law a boat is in principal use in the state or territory of the
United States in which it is used most during a calendar year. Thus if you use
it 100 days in Maryland, 200 days in the BVI and 50 days in Florida, the state
of principal use is in Maryland. BVI does not count (it's not a state of the
United States) (EDS NOTE -- AS OF JANUARY, 2008, IT IS POSSIBLE THAT THE BVI AND OTHER NON-US JURISDICTIONS MAY COUNT -- IF IT MATTERS TO THE ANALYSIS OF YOUR CASE, PLEASE CALL FOR SPECIFIC ADVICE), and Florida has less days than Maryland.
Things get a bit tricky from that point, though. Days only count in Maryland if
the boat is "in use." In use does not mean its being used (in the sense of
operating it), but means by definition any time that it is in the water or any
time that it is kept in a structure in readiness for use. Thus (stay with me
here) a boat that is in Maryland, outside, and out of the water is not in use;
but a boat that is in the water but not being used, is in use. Also, it is
generally recognized that a boat that is in the water but winterized is not in
use for principal use analysis, but it is considered that a boat on a trailer,
indoors or out, is in use.
Confused? No worries ... so is everyone else.
So what should you do if you get an assessment, or perhaps more importantly, if
you would like to avoid getting one? First, you should be aware that Maryland
recently extended its cruising window to 90 days-if the boat was not purchased
in Maryland, you can cruise for no more than 90 days without facing tax
liability, even if you do not spend more time in another single state.
Second, you should be aware that there are exceptions for boats that are out of
the water, winterized, or undergoing significant repairs. The details of those
exceptions will have to wait for another article, but they should be considered
if the boat is going to be (or has been) in Maryland for an extended stay.
Third, you can be sure to keep (and keep evidence of keeping) your boat in
another state for more days than in Maryland. Finally, if you receive an
assessment, be sure to act quickly. If you have good defenses, and you do not
raise them in time, they will not be so good.
If you are going to need counsel-that is, if you may have a defense and there is
a significant amount at issue-identify one who knows this area, hire them in
time get an appeal in the 30 day deadline, and do so before contacting the DNR
yourself. I often see people revealing facts that were better left unsaid, or
paying tax that was not owed. A little bit of good advice can save a lot of
heartache in the long run, it may also be able save money in any negotiation if
tax must be paid.
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