How Do You Avoid Sales Taxes on Boats?


Quick Answer

Finding loopholes in state law regarding the terms of purchase and storage of a boat can allow people to avoid paying sales tax on it. A loophole in California cost the state government about $55 million per year in tax revenues, according to the Los Angeles Times.

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One of the most well-known examples of tax loopholes benefiting boat purchases took place in California. The state sales tax on boat purchases was about 8 percent, which is just a few thousand dollars more in some cases. However, on luxury yacht purchases, particularly for craft costing $400,000 or more, it became worthwhile to take advantage of the law. Going offshore to make the purchase and then keeping the boat outside state waters for at least 90 days after the purchase exempted the new boat owners from sales tax, notes the Los Angeles Times.

The small Mexican town of Ensenada has built its entire tax base on the back of these purchases. People rent slips in the harbor for four-month terms, and the marina provides a computerized record for all uses of the boat, because the tax law states that the owner must use the boat instead of just storing it somewhere for three months. This small town has gained the nickname "The Three-Month Harbor," reports the Los Angeles Times. People buying boats in other states should look for similar loopholes in state tax law if they want to avoid sales taxes without breaking the law.

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