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Author Topic:   Tax on Registration of Restored Boat

Marsh posted 06-22-2014 09:29 PM ET (US)
A friend of mine was given, free of charge, a derelict cabin cruiser. This 28-footer had been sitting for several years on a trailer, after having sat moored for several years. Most recent registration is back in the 1990's. This friend is spending considerable effort and expense to make this boat seaworthy again. Paint and polish all around. New engine, overhauled out drive, new fuel and water tanks, new rub rail, reupholstery--the list goes on. For those on this forum who have restored old Whalers, what has been your experience when it comes time to pay tax and register such a restored vessel? I advised my friend to take as many pics as possible of the boat in its "before" condition. If boat registration works like cars, the boat will be looked up in a reference chart, a value will be imputed, and the new owner will be assessed tax on that imputed value. What's the best way to minimize those taxes?
Binkster posted 06-22-2014 11:41 PM ET (US)
In Florida when you buy a boat you get a registration and a bill of sale from the previous owner. You pay a tax on the purchase price only. What you do to it or spend on it after you own it is your business. If you get a boat as a gift you get a paper stating so from the owner and also the old registration. You pay no tax only a registration and transfer of owner fee. If your friend only got the boat and no paperwork, he has a problem and will be jumping through hoops trying to get it registered and titled. I'm sure your state is the same or very similar.
Do you expect the state to tax him on his labor with material to restore this boat. How much is his labor worth, you as a CPA should know that couldn't work.
rich
Chuck Tribolet posted 06-23-2014 03:13 AM ET (US)
The state may be wanting back property taxes.
Chuck
Dave Sutton posted 06-23-2014 08:18 AM ET (US)
It all depends on the state.
In every state I have lived in, it's just valued for sales tax when it's originally titled at what is on the bill of sale. $1.00 is fine in many cases. Other states are more agressive about things, and also have recurring annual property taxes on boats. The only three states I can offer data points on are NJ, RI, and WI and in two of those three states sales tax is paid when titled based on the bill of sale value (with RI being a state where no sales tax at all is collected on boats, no matter what), and none of the three have any prooperty taxes on boats.
Bottom line: Your experience will vary according to where you are.

Dave

.
EJO posted 06-23-2014 01:21 PM ET (US)
Which State are we talking about? The ones I've experience with (AL, MA, OK, MI) base it on sold value which in this case is $0 so only registration/documentation state taxes would be charged.
Marsh posted 06-23-2014 09:21 PM ET (US)
The boat came from Virginia, is now in Georgia, but will ultimately be registered in Tennessee, because that's where it will be used. Tennessee typically ignores amounts on bills of sale that are less than their "blue book" value. They don't really use a Blue Book, but they do have a fairly thorough reference listing the "fair market values" of various makes and models of cars, trucks, boats, planes, etc. When the bill of sale amount is less than the reference guide amount, the taxpayer must demonstrate to the satisfaction of the agent why the higher value should not be used. Tax is then levied on the value, at the rate of 7%, plus another 2.75% on the first $1600 of value...or something like that. I used to know these things, but have been retired too long to remember such trivia. Anyhow, since the bill of sale is for zero, the State will impute some sort of value. The owner will have to somehow dissuade them from using "fair market value" according to their reference book, or otherwise will have to pay a perhaps sizable amount of tax.
For example, the state's reference guide may say that the FMV of this particular boat is, say, $15,000. To get the vessel registered, the owner would have to pay 7% of $15,000, plus another 2.75% of $1,600 on a boat that was essentially worthless before he undertook his massive restoration.
george nagy posted 06-23-2014 10:24 PM ET (US)
How much can this boat be worth, the last time it was registered was in the 90s sometime then it could be worthless in any valuation guide. It is widely expected and accepted that boats depreciate very rapidly. Here in Florida it may be next to impossible to get rid of some older boats and people often end up abandoning them somewhere which is often on private property.
contender posted 06-24-2014 03:50 PM ET (US)
1St Dave is correct every state is different when it comes to paying taxes on items, George is also correct, boats reach a point where the value in not there anymore (except for a few makes) The mistake your freind has made is that the taxes(and tranfer of ownership) should have been paid on a boat that needed all the work, Best time to pay the tax would have been some pictures with no engine no outdrive, interior a mess, hull dirty, and 4 flat tires. This is the type of picture you need to bring to the tax office. Once the boat has transfer owners (As Bink has stated) you can bring it back to factory conditions. Also if they look up the price on their chart, do not let them screw you, the chart like a car has different values excellent, good, average, poor, and why bother. Another point if this hull is older than what their charts show, how do you determine the tax value? I would not do one more ounce of work until you have the taxes paid and ownership in your hand...

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Author	Topic: Tax on Registration of Restored Boat
Marsh	posted 06-22-2014 09:29 PM ET (US) A friend of mine was given, free of charge, a derelict cabin cruiser. This 28-footer had been sitting for several years on a trailer, after having sat moored for several years. Most recent registration is back in the 1990's. This friend is spending considerable effort and expense to make this boat seaworthy again. Paint and polish all around. New engine, overhauled out drive, new fuel and water tanks, new rub rail, reupholstery--the list goes on. For those on this forum who have restored old Whalers, what has been your experience when it comes time to pay tax and register such a restored vessel? I advised my friend to take as many pics as possible of the boat in its "before" condition. If boat registration works like cars, the boat will be looked up in a reference chart, a value will be imputed, and the new owner will be assessed tax on that imputed value. What's the best way to minimize those taxes?
Binkster	posted 06-22-2014 11:41 PM ET (US) In Florida when you buy a boat you get a registration and a bill of sale from the previous owner. You pay a tax on the purchase price only. What you do to it or spend on it after you own it is your business. If you get a boat as a gift you get a paper stating so from the owner and also the old registration. You pay no tax only a registration and transfer of owner fee. If your friend only got the boat and no paperwork, he has a problem and will be jumping through hoops trying to get it registered and titled. I'm sure your state is the same or very similar. Do you expect the state to tax him on his labor with material to restore this boat. How much is his labor worth, you as a CPA should know that couldn't work. rich
Chuck Tribolet	posted 06-23-2014 03:13 AM ET (US) The state may be wanting back property taxes. Chuck
Dave Sutton	posted 06-23-2014 08:18 AM ET (US) It all depends on the state. In every state I have lived in, it's just valued for sales tax when it's originally titled at what is on the bill of sale. $1.00 is fine in many cases. Other states are more agressive about things, and also have recurring annual property taxes on boats. The only three states I can offer data points on are NJ, RI, and WI and in two of those three states sales tax is paid when titled based on the bill of sale value (with RI being a state where no sales tax at all is collected on boats, no matter what), and none of the three have any prooperty taxes on boats. Bottom line: Your experience will vary according to where you are. Dave .
EJO	posted 06-23-2014 01:21 PM ET (US) Which State are we talking about? The ones I've experience with (AL, MA, OK, MI) base it on sold value which in this case is $0 so only registration/documentation state taxes would be charged.
Marsh	posted 06-23-2014 09:21 PM ET (US) The boat came from Virginia, is now in Georgia, but will ultimately be registered in Tennessee, because that's where it will be used. Tennessee typically ignores amounts on bills of sale that are less than their "blue book" value. They don't really use a Blue Book, but they do have a fairly thorough reference listing the "fair market values" of various makes and models of cars, trucks, boats, planes, etc. When the bill of sale amount is less than the reference guide amount, the taxpayer must demonstrate to the satisfaction of the agent why the higher value should not be used. Tax is then levied on the value, at the rate of 7%, plus another 2.75% on the first $1600 of value...or something like that. I used to know these things, but have been retired too long to remember such trivia. Anyhow, since the bill of sale is for zero, the State will impute some sort of value. The owner will have to somehow dissuade them from using "fair market value" according to their reference book, or otherwise will have to pay a perhaps sizable amount of tax. For example, the state's reference guide may say that the FMV of this particular boat is, say, $15,000. To get the vessel registered, the owner would have to pay 7% of $15,000, plus another 2.75% of $1,600 on a boat that was essentially worthless before he undertook his massive restoration.
george nagy	posted 06-23-2014 10:24 PM ET (US) How much can this boat be worth, the last time it was registered was in the 90s sometime then it could be worthless in any valuation guide. It is widely expected and accepted that boats depreciate very rapidly. Here in Florida it may be next to impossible to get rid of some older boats and people often end up abandoning them somewhere which is often on private property.
contender	posted 06-24-2014 03:50 PM ET (US) 1St Dave is correct every state is different when it comes to paying taxes on items, George is also correct, boats reach a point where the value in not there anymore (except for a few makes) The mistake your freind has made is that the taxes(and tranfer of ownership) should have been paid on a boat that needed all the work, Best time to pay the tax would have been some pictures with no engine no outdrive, interior a mess, hull dirty, and 4 flat tires. This is the type of picture you need to bring to the tax office. Once the boat has transfer owners (As Bink has stated) you can bring it back to factory conditions. Also if they look up the price on their chart, do not let them screw you, the chart like a car has different values excellent, good, average, poor, and why bother. Another point if this hull is older than what their charts show, how do you determine the tax value? I would not do one more ounce of work until you have the taxes paid and ownership in your hand...