State Title or Documented Vessel?

To quote Mel Brooks "It is good to be the king." Every state wants to tax vessels which ply its waters for an extended period of time. Consequently, they require that vessels which fit within certain categories must be registered with the state. What this really means is that the king wants his money in the form of taxes. In addition to being registered with the state a vessel may be "documented".

Merely because a vessel is documented does not mean that you can avoid state tax, however, you may be a candidate for offshore flagging which could save you five percent (5%) or more of the purchase price.

A recreational vessel which is documented has a certificate of admearsurement stating that the vessel is of at least 5 net tons, U.S. citizens own at least 51% of the vessel, it has marking certificate (hull number), and the owners have filed an application for a Document with the Coast Guard.

Why is it important whether the vessel is documented or not? Banks and financiers want to hold the vessel as security when they provide the permanent financing for her construction. The device which achieves this is a Preferred Ship's Mortgage. A Preferred Ship's Mortgage is statutorily created at 46 U.S.C. 313. The Preferred Ships Mortgage is only available on documented vessels and only to FDIC approved banks or other lending institutions which have been federally approved.

A Document is also required for any vessel that is to engage in commerce. This requirement was enacted to counteract the widespread decline of the US shipbuilding and shipping industries, although there is significant debate as to whether it has encouraged progress toward this goal. Vessels wishing to engage in the coastwise trade (commerce between two US ports without an intervening foreign port), must be documented and registered and meet additional requirements before receiving their Document, including a requirement that US citizens hold a 75% interest in the vessel and that the vessel meet the US build requirements.