Photo Credit: John Spade
The Florida Yacht Brokers Association and attorneys and lobbyists with Becker & Poliakoff are engaging in an industry effort to amend current legislation hindering the sale of foreign-flagged yachts in the U.S.
Under Title 19 CFR § 4.94, foreign-flagged boats can obtain a cruising license in the U.S., with the caveat that the vessel is not engaged in trade, which includes showing the vessel and offering it for sale to U.S. residents. Therefore, in order for a foreign-flagged boat to be offered for sale in the U.S., it must be formally imported and custom duties must be paid.
Title 19 USC 1304, also called the Boat Show Bond, is a provision that currently gives an exemption to the license, but the bond is limited in scope: It only grants an exemption for yachts over 79 feet, the vessel is only for sale at a boat show and the bond is for a non-extendable six months.
“It’s limited in time, size and the location of sale, which doesn’t help a large portion of the foreign yachts that would like to be offered for sale to U.S. residents,” said Jennifer Diaz, shareholder of the Customs and International Trade Department at Becker & Poliakoff. “Typically, a foreign yacht takes about two years to be sold, on average. So unless you have those caveats of the U.S. residents who are interested in the foreign yachts at the boat show, but otherwise there are a whole lot – 300 to 400 – boats on the market right now that don’t meet that exception that have to be formally imported into the U.S. and pay customs duties prior to offering that yacht for sale.”
FYBA is working with Becker & Poliakoff to expand or change the current regulations so that duties would not need to be paid until the point-of-sale or post-sale, describing the current regulations as synonymous with paying taxes on a home before a homeowner can list the property.
“As we looked at the cruising license, [we] determined that the cruising license was sort of the key [for] why these boats were allowed to come here and the cruising license was also where the language was contained that warned the boat owners that if in fact they simply offered their boat for sale to U.S. residents while it was in U.S. waters that it could be seized and they could forfeit their boat or have to pay double the duty. We decided that was the place to focus,” said Jeff Erdmann, director of public affairs for FYBA. “Any time that you put up a tax in advance of somebody doing something, it is the best way to eliminate it from being done."
Erdmann said the current law was put into place in 1908 when the world was more protectionist, and the U.S. was smaller and looking to isolate itself from other countries. However, in Europe, if a U.S. boat was in European waters under a cruising license, the vessel owner would not be forbidden from offering the boat for sale and all of the taxes are point-of-sale or post-sale. The legislative effort aims to match U.S. provisions with other countries.
“The beauty of this legislation is it will encourage $20 billion worth of boat inventory to come to the U.S., be stored and operated in the U.S. and be offered for sale,” said Erdmann.
FYBA and Becker & Poliakoff have been working with Rep. Lois Frankel (D-Fla.), a member of the Congressional Boating Caucus, on navigating the process of developing legislative language that both creates jobs and minimizes or identifies any unintended consequences.
Omar Franco, managing director of the Washington DC office for Becker & Poliakoff, has worked with the committee to make sure the legislation they submit has been vetted by all the affected agencies, the marine industry and all other stakeholders.
“This is a jobs bill. It’s not necessarily about just the sale of the boat. It’s also about once the boat is here, how many jobs will be created through ancillary businesses: painting, welding, gas, cruise,” said Franco. “It’s the whole gamut.”
Diaz said that for each foreign-flagged boat that could be sold on the market, 10 percent of their value would have been spent in the U.S. on labor, goods, service and maintenance, which could add about $200 million annually to the local economy. She added that new buyers typically spend roughly 13 percent of the selling price of their boat on different upgrades and improvement in the first year post-sale, which could add about $260 million to the local economy and add jobs.
The Marine Industries Association of South Florida commissioned a study done by marine consultants that estimated the marine industry had an economic impact of $11.5 billion and supported 136,000 jobs in 2014 alone for the tri-county area in Florida.
“The policy that we have right now that does not allow for the deferral of duties prior to offering foreign-flagged yachts for sale to U.S. residents is discouraging about $2.46 billion in economic activity for the U.S. and stunting growth in Florida by the tune of $17.2 billion in the marine industry, which supports 200,000 jobs,” said Diaz. “In reality, when we talk about the numbers and we have another $200 million plus yearly that we’re thinking could be spent if this was in place, we can think about how much of that would really be an impact in the tri-county area in south Florida and how many jobs that would really impact.”
Erdmann noted that the U.S. Treasury would not lose money by implementing FYBA’s initiative. After a boat has been imported into the U.S., if it is exported without being sold, the owner can apply for what is referred to as a drawback, which would be a refund on the duty. In fact, he believes the FYBA initiative will prove to be lucrative for the Treasury.
“It’s not as if they get that money and then if the boat doesn’t sell, they get to keep it,” said Erdmann. “The Treasury will enjoy receiving duty on boats that they hadn’t before because if you bring in more boats and allow them to be offered for sale, more boats will be sold.”
The bill has many industry supporters, including the National Marine Manufacturers Association, BoatUS, MIASF and more. The only question is how to perfect the legislative language and whether to introduce the legislation as a standalone bill or part of a bigger package.
“We really do have a nice coalition of industry behind this bill,” said Franco. “Whatever the best vehicle is, once we get it in there, we’re positive we’re going to have support of at least the Florida Congressional delegation, and that’s when we’ll go out national to make sure all the national folks are on board as well.”