SACRAMENTO, Calif. – Democratic lawmakers in California have begun a campaign to close what they call a “yacht-tax loophole” that has been on the books for over 40 years, according to a story in today’s San Francisco Chronicle.
A state tax code provision allows boat buyers to avoid paying sales tax on new purchases by finalizing their transactions five miles off the California coast in international waters, then taking the boat to a dock outside the state, usually in Mexico, and leaving it there for 90 days. The vessel is then brought back to California without the new owner having to pay sales tax, the Chronicle reported.
One estimate puts California’s lost sales-tax revenue at $55 million annually because of this practice, the newspaper said.
"I find the loophole offensive," said Sen. Wes Chesbro, D-Arcata (Humboldt County), chairman of the joint budget committee, which voted Thursday to end the practice. "I don't get to drive the pickup I bought through any loophole."
Republican lawmakers and Gov. Arnold Schwarzenegger want to leave the tax code as is, fearing changes will drive big purchasers out of California and hurting the economy, according to the Chronicle.
Pat Garfield, president of Farallone Yacht Sales in Alameda, agrees with the Republicans, and told the newspaper that changing the law would drive business out of the state.
"It's usually people buying higher-end boats," said Garfield, who added that her company refers customers to their attorneys or accountants when they inquire about the process. "You're talking about $2 [million] or $3 million dollar boats – people are going to find a loophole. [The change] will hurt us all."