Buying the Boat in a State Without Sales Taxes
Probably the simplest way of avoiding sales taxes on a boat purchase is to buy the boat in a state that doesn't have a sales tax. These include Montana, New Hampshire, Delaware and Oregon. Alaska also has no state sales tax, but municipal sales taxes add an average of a little under 2 percent.
This strategy is straightforward and simple in some ways, but like almost all aspects of sales tax avoidance involving boats, it's complicated. Ultimately, however, if you buy a boat in a state without a sales tax but keep the boat in a state that does, the state where you're keeping the boat is going to charge you the sales tax you tried to avoid. They may call it a "use tax" instead, but the taxed amount will be the same as the sales tax you thought you had avoided.
One Example: Florida's Sales and Use Tax Procedures
Because each state handles this delayed sales tax differently, you should carefully check your state's laws. Florida provides an example of the difficulty of continuing to avoid the sales tax on a boat brought in from another state. Florida requires anyone buying a boat from a dealer registered in Florida to pay the sales tax unless they sign an affidavit (Form GT-500003) agreeing to leave Florida's waters within a relatively short time.
The time limit varies, but for smaller boats, it's 10 days, extendable one time only for another 10 days. Larger boats can extend the time allowed to six months, but fees and conditions are involved; these are explained on the Florida Department of Revenue website under "Sales and Use Tax on Boats." Anyone buying a boat from a private party in Florida must immediately pay the sales tax due.
Other Similar State Tax Regulations
Florida's qualifications for sales tax exemption on boats is particularly stringent. If you buy a boat out of state but use it in Florida waters for 20 or more days in a single year, you are obliged to pay a use tax identical to the Florida sales tax.
Other states have different regulations that also make it difficult to avoid the use tax. In California, you must pay the use tax in most circumstances if you bring the boat into California waters within a year of buying it or at any time that you are a California resident and are merely moving the boat around to avoid the tax. Although Florida limits the total sales and use taxes on a single boat purchase to $18,000, California has no similar limitation. A $1 million boat will normally incur sales or use taxes of nearly $100,000 in California.
None of these use taxes has statutory time limits: States with sales taxes can collect the use tax whenever your boat's in-state residence qualifies it. For example, you can sail a yacht you've owned for 20 years into Florida waters and 20 days later incur the use tax. Other states have slightly different use tax laws, but all have a similar effect: Sooner or later, if you keep a boat in state, you'll end up paying state use taxes.
Beware of Tax Schemes
Some states -- Montana, particularly -- have small industries devoted to helping you avoid sales taxes on your boat. The pitches are similar, and many contain misinformation leading you to believe that you can buy the boat in Montana or another non-tax state, then bring it into your home state without paying the sales tax. That might be technically true, but you will pay the same amount of tax that goes by another name -- a use tax.
The legal way to avoid the sales tax is to buy the boat in a state without sales taxes, keep the boat in a state that has neither sales nor use taxes on boats (Oregon, for example) and, when cruising in waters outside your home state, strictly observe state residency time limits.