OAKLAND, Calif. – An exemption in California's tax code allowing state residents to avoid paying sales tax on newly purchased boats will end Oct. 1 under a new law included in California's recently approved budget, according to a story in Sunday’s Oakland Tribune.
Californians had been able to skirt the state’s sales tax by storing their boats out of state for more than three months after purchase. But a bill closing the loophole in the tax code was attached as a rider to the state’s budget bill, which was passed a few weeks ago.
Many in the California boating industry opposed the new law saying it will severely damage California's marine industry, which contributes $17 billion annually to the state economy in the form of jobs and revenues, the Tribune reported.
The State Board of Equalization estimated that closing the "loophole" will result in an additional $54.6 million in sales taxes collected. However, no adjustment was made in its calculations to account for possible lost sales, which many in the boating industry say will happen, according to the newspaper.
Gordon Barienbrock, who sells yachts at several California locations, told the newspaper he's afraid the new law will drive a good portion of his business to out-of-state dealers.
"We've always been in competition with East Coast dealers," Barienbrock said. But now he envisions such dealers will advertise that boats can be purchased in their states tax-free, even if California residents might still be liable for use tax here.
However, others in the industry say they may actually benefit from the closing of the exemption.
"I think it's actually going to help us because the boats will have to stay here," said John Dinwiddie, yard manager at Berkeley Marine Center.
Dinwiddie told the Tribune that in the past, some owners would bring their newly purchased boat to his yard to get only minimal work done to make it "oceanworthy," then get all the detailing and painting done in Mexico at a fraction of the cost.
Sales of boats costing less than $100,000 probably won't be affected as much, brokers told the newspaper since such owners generally don't keep the boat out of state to claim the exemption.
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