Lochner Law Firm, P.C.

Todd D. Lochner
Chase A. Eshelman
Chris J. McNally*
Eugene E. Samarin
Gregory R. Singer

Lochner Law Firm, P.C.
Donner Building
91 Main St., 4th Floor
Annapolis, MD 21401

P: (443) 716-4400
F: (443) 716-4405

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* Barred in RI & MA

Maryland Boat Tax 101

Editor's note: This Article first appeared on this website and in print in 2002. Please note that tax law is constantly evolving and there have been significant changes that may affect your tax liability. the article below was edited from the original for content.

Is your vessel's purchase price over $300,000? If Yes, read this first.

In our office, since most people that call have boat and a legal problem, we have some insight into the perils faced by boaters. Recently, we have been inundated with calls from folks that received a letter from the Natural Resources Police, Boat Tax Enforcement Division. Two gentlemen from that Division say that they have collected nearly $2,000,000 in unpaid taxes this winter, almost $500,000 in December alone, after a major enforcement initiative in and around Annapolis. This probably explains the volume of calls that we have been getting. DNR's letter goes something like this:

"Dear Mr. Blank. Our records indicate that you own the vessel 'Gizmo'. Our investigators have observed your vessel in use in Maryland waters. Maryland law requires all owners of vessels used principally in Maryland to pay an excise tax of 5% of its purchase price or fair market value. This tax must be paid within 30 days of purchase or entry into the state or penalties or interest may be assessed. For your convenience, a form is included with which to pay the tax."

The typical boat owner's reaction to this letter is less than overjoyed. If your boat is worth $100,000, you are looking at a $5,000 tax bill - and that is before penalties and interest accrue. Interest on unpaid taxes runs at 1.5% per month (18% for a year), and the penalty can be as much as 100% of the taxes due. So if your boat was purchased for $100,000 and the tax has gone unpaid for a year, your total bill could be as much as $28,000.

So what to do next? If you call us and tell us that you only use your boat in Maryland waters, and you haven't paid the tax, we'll advise you to just pay it. The funds go to the Waterway Improvement Fund, which assists with dredging, aids to navigation, boater education and other issues of interest to boaters. Many boaters, however, do not owe the tax. In certain scenerios, such as if the boat is kept in Florida for the winter, or taxes were paid in another state, or that tax was paid when you bought the boat, you may not owe anything. Be careful when you decide to fight the assessment, however, as a misstep could cost you even more money in penalties and interest, or an assesment for tax owed to another state. When added up, this could have you paying more than you owed when you received the letter.

The excise tax is due from those boaters whose boat is "principally used" in Maryland waters. A boat is principally used in Maryland if it is in Maryland waters, and it is not "principally used" in another single state. If the boat is in Maryland for 150 days, in Florida for 100 days, and traveling around the east coast for the other 115 days in a year, it is principally used in Maryland, because it is in Maryland for more days than it is in any other single state. Similarly, if the boat is only used 30 days a year, 20 in Maryland, and 10 in Delaware during the family vacation, it is principally used in Maryland. If your boat is principally used somewhere else, and you can prove it by showing slip agreements or something similar, then you will not be required to pay the tax. Be careful, however, because state tax authorities share the information they receive. If you prove to Maryland's Boat Tax Enforcement Division that your boat is principally used in Pennsylvania, you will be getting a letter from Pennsylvania telling you to pay their excise tax. Pennsylvania's excise tax rate is 6%-1% higher than Maryland.

So how can you avoid the tax? There are a number of possible solutions. You can prove that the boat is not principally used in Maryland. You can prove that you already paid the tax in another State. You can show do not actually own the boat that the letter references. You can show that your boat is not a vessel for excise tax purposes, i.e. it's an unpowered sailboat. You can show that you received the boat as a gift from a family member that had already paid the tax. These arguments and a few others, if properly presented to the authorities, will probably be successful.

There are some excuses that will definitely not work. For example, "I didn't know I owed it;" "I thought the broker paid it;" "I registered the boat in Delaware;" "The vessel was on dry land for most of the year." All of these arguments do more harm than good. Particularly, "I registered the boat in Delaware" is like blood in the water to tax enforcement personnel. Remember, too, that your boat does not even need to be in the water-if it is in a high and dry boatel, and ready for the water, DNR will consider it ready for use and expect the tax to be paid.

If there is a lot of money at stake and you are in a situation that is questionable, get good legal advice. It may be the difference between owing everything including penalties and interest, and owing nothing. It may also prevent you from making a misstep that costs you even more money.

Editor's Notes (by Dave Gendell of Spinsheet Magazine): This column is summary in nature and should not be applied to a specific case or situation. In 1993, at the urging of boatbuilders and the wider marine industry, the state of Rhode Island repealed its Boat Sales Tax. Today the state's boatbuilding and marine industry promotes itself as a unified force in magazine ads, on the Internet, and through a shared "Building Better Boats" marketing campaign. The theme of the program is "Rhode Island: Where Boaters Come First." Rhode Isalnd's tax advantages are spread liberally throughout the presentations, including the following crystal clear sales pitch:

"Make Rhode Island your home port and enjoy the very best in boating, and where there is no sales or use tax. That's right. No sales or use tax on any boat bought or built in Rhode Island. Plus no tax on the other gear you buy at the time of your boat purchase. And, there's no personal property tax on boats."

Granted, Maryland is not Rhode Island, a state which is home to a dozen major boatbuilders and regularly produces America's Cup and Round the World-ready hulls. But the impact of the Rhode Island project cannot be ignored. Within two years of the Sales Tax repeal, employment in the marine industry rose 20%, while the states's total employment only rose a percentage of that. In the five years following the repeal, gross revenues in the Rhode Island marine industry grew by 52%. The number of individuals in the state's marine industry increased by 140%.

A number of boats, large and small, are purchased by Chesapeake Bay sailors every year, and at least a few of the larger boats are being registered in Rhode Island and have moved their homebase to Newport - as a direct result of the sales tax. These vessels are owned by Chesapeake Sailors, but they carry "Newport" on their stern, and they spend the majority of the year in Rhode Island. As a result, yard fees (which can easily run into five digits even with only "routine" maintenance), crew dinners, and taxi fees to and from the Providence airport stay in Points North."

In 2013, the Maryland General Assembly passed a cap on the vessel excise tax for boats over $300,000.

In each year since this article there have been significant changes to the State Boat Act that affect the application of the boat tax in Maryland. In 2003, there was a major revision passed in the Maryland General Assembly, only to be vetoed by the Governor. If you have received an assessment, be sure to contact us before you discuss your case with the Tax Enforcement Division of the Department of Natural Resources.

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