Archive for » August 22nd, 2013«

Sailing-New Zealand wins twice in America's Cup challenger series

By Ronnie Cohen

SAN FRANCISCO, Aug 21 (Reuters) – Emirates Team New Zealand breezed into the finish line twice on Wednesday in the America’s Cup challenger series, giving the heavily favored Kiwis a 4-1 lead over Italy’s Luna Rossa Challenge.

The races were the first of the series on San Francisco Bay in which both high-tech 72-foot (22-meter) catamarans finished without one suffering a disabling mechanical breakdown. But Italy trailed New Zealand by two minutes 18 seconds in the first race and one minute 28 seconds in the second, so far behind that neither looked like much of a contest.

The competition for the Louis Vuitton Cup was so uneventful a commentator asked New Zealand skipper Dean Barker if he saw his crew’s first race of under 26 minutes as perfect.

“I thought the guys did a really, really nice job all the way around,” Barker responded. “We know we’re going to have to keep doing it and keep improving to stay in the competition.”

They also must keep their high-speed yachts in shape. Mechanical breakdowns – highlighted with the appearance of glue guns and hacksaws at the starting line – have plagued the series, amplifying concerns about the fragility of the double-hulled boats being used in this year’s version of the quest for the world’s oldest sporting trophy.

Last week, in three consecutive races one of the competitors was forced to stop, handing a victory to the team that managed to cross the finish line.

The first team to win seven races in the Louis Vuitton Cup final will sail against defending America’s Cup champion Oracle Team USA next month.


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Michigan Collects Use Tax On Illinois Resident’s Rhode Island Yacht

view from atop Harbor Springs' Bluff

view from atop Harbor Springs’ Bluff (Photo credit: Wikipedia)

It looks like John Podmajersky will be paying the State of Michigan nearly $100,000 in use tax on his 65 foot yacht, the Laughing Dolphin, based on this decision of  the Court of Appeals .  Interest and penalties will nearly double that.  Mr.  Podmajersky appears to be a controversial figure in both yacht racing and the Chicago arts world, but I’m just a tax blogger and the yacht story is interesting enough.  There are three states involved in the story, so we will handle it geographically rather than chronologically. 

The most important tax principle to remember as you follow along is that sales tax is backed up by use tax.  If you don’t pay sales tax when you buy something, the state where you bring it may want to get use tax from you

Rhode Island

The Laughing Dolphin was actually owned by an  eponymous Rhode Island company, Laughing Dolphin LLC, of which Mr. Podmajersky was the majority owner.  The yacht was purchased in Rhode Island which does not tax the sale of boats.  Not for naught is Rhode Island called the Ocean State.  The state flag has an anchor in the center.  The US Naval War College is in Newport, as are many, many yachts, which fits well with the famous mansions including The Breakers

 So you really can’t blame John Kerry for not home-porting the 76 foot Isabel in one of the ports in the state that he was representing in the US Senate.  Avoiding over $400,000 in Massachusetts use tax as this story in the Boston Herald relates was probably incidental.  The thing about Massachusetts is that unless you are on one of the major East-West roads, you can’t drive more than 50 miles or so without crossing a state line allowing you, if you are so inclined, to buy your liquor in New Hampshire, do your casino gambling in Connecticut and keep your tax-free yacht in Rhode Island.

At any rate, there was no requirement to pay sales tax on the purchase and if Mr. Podmajersky had intended to use Laughing Dolphin on the ocean, it could have stayed in Newport.  Mr. Podmajersky lives in Chicago, though, and Laughing Dolphin was destined for the Great Lakes.

Illinois

Mr. Podmajersky, living in Chicago and all, Illinois thought that it should be able to get use tax on the Laughing Dolphin.  His attorney explained why that was not correct, since the Laughing Dolphin spent very little time docked near the Windy City:

The letter provides in relevant part: “It is the taxpayer’s position that the Laughing Dolphin was never used more than 30 accumulated days in any calendar year in Illinois since its purchase in July 2006 and, thus, has never been subject to Illinois use tax.” The letter continues, “at no time was the boat in Illinois for more than 30 days in 2006, 2007 or 2008. As you can see, the Laughing Dolphin spends most of its time in Michigan. Therefore, the taxpayer was not subject to the Illinois Use Tax in 2006 through 2008.”

So the state where he bought the boat does not want to tax it and the state where he lives can’t tax it.  Seems like the end of the story except that Illinois did an unkind thing:

The Illinois Department of Revenue forwarded this information to the Michigan Department of Treasury, which then began an inquiry to determine whether the boat was subject to use tax. On October 12, 2009, Treasury issued a bill of taxes due for the 2006 tax year in the amount of $98,557.97, representing $66,000 in tax due, $16,500 in penalties, and $16,057.97 in interest.

Michigan

Mr. Podmajersky’s reasoning as to why the Laughing Dolphin should not be subject to Michigan Use Tax is something of an epic tale of boating woes.  It reminds me of a little plaque I saw for sale in a Newport gift shop that defined a boat as a hole in the water surrounded by wood into which one pours an endless stream of money.  The essence of his defense is that even though the boat was in Michigan during the relevant period to be subject to use tax, it was not there on purpose:

Petitioners hired a professional captain to transport the boat from Rhode Island to Chicago, traveling through New York and then through the Great Lakes. The boat departed Rhode Island on July 31, 2006. Between August 11 and August 13, the boat stopped in Cleveland, Ohio to pick up Podmajersky and three guests for the remainder of the trip.

According to Podmajersky, a guest traveling on board the boat mistakenly pumped hundreds of gallons of water into the fuel tanks on August 16, 2006, causing a catastrophic breakdown in Lake Michigan and necessitating a tow. A tug boat arrived several hours later and towed the boat to the Irish Boat Shop in Harbor Springs, Michigan.

From there it was one GD thing after another:

On September 3, 2006, after the repairs were complete, Podmajersky took the boat back out onto Lake Michigan. According to Podmajersky, “[a]fter being underway for some time, the vessel service indicators again began to alert us to water in the fuel lines. The vessel engines were not operating properly, and it was clear that the water had not been fully removed from the fuel system.” Further, Podmajersky averred: “The fuel filters on the vessel continued to fill with water and numerous systems indicators represented that water remained a safety hazard for the boat.” “I had to stop the boat every 15 minutes to clear water and algae from the fuel filters.”

The Decision

Mr.Podmajersky ended up bringing the boat back to Michigan for winter storage in 2006.  Since that was more than 90 days after purchase, that apparently would not have created liability for use tax, since he was not a Michigan resident.  Of course the Laughing Dolphin spent a lot of time in Michigan during the ninety days after purchase, but that was not on purpose.  The Appeals Court did not buy the argument:

“Although it may have been a practical necessity to repair the boat in Michigan, that does not change the fact that keeping the boat here for those purposes constitutes storage and use.”

Contrary to petitioners’ argument, nothing in MCL 205.93(1)(a) requires that Treasury establish the taxpayer’s subjective intent for bringing the property into the state. Rather, under MCL 205.93(1)(a) it is presumed that property is acquired for use, storage, or other consumption in Michigan and is therefore subject to taxation if the taxpayer brings the property into the state within 90 days of purchase.

The Moral 

When I write a post on a convoluted federal income tax decision, I will often get a comment that things would be so much simpler and efficient if we had some sort of sales tax.  There is also a tendency in some circles to maintain that states inevitably handle things better.  Although, I don’t doubt that there are people who seek to avoid taxes for principled reasons, I think for the most part, people seek to avoid taxes, because they prefer to keep the money for themselves.  Were it not for the carelessness of his guest, Mr. Podmajersky might have been able to avoid sales or use tax entirely on the Laughing Dolphin and who can blame him for trying ?

You can follow me on twitter @peterreillycpa.

 

 


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Public Invited to Comment on New Ferry Design

ACF Day Boat DOT Project Manager Doug Miller points to the bow of the proposed ferry, where vehicles would load or unload. (Photo by Rosemarie Alexander/KTOO)

The Alaska Marine Highway System Manager says the first of two day boats will be sailing Lynn Canal even before the summer of 2016.

Captain John Falvey and other state transportation officials are holding meetings on the new ferry design this week. The first was in Juneau last night.

“The purpose of this was to have a lunch box boat.”

Will Nickum is an engineer for Elliott Bay Design Group in Seattle, architects for the day boats and other Alaska Marine Highway ships.

But the paradigm of state ferries is changing; instead of operating 24-hours a day, the proposed 280-foot shuttles would be tied up at the end of 12-hours, like the fast ferries Fairweather and Chenega.

“At the end of the day, the crew would go home and then come back the next morning and start all over again.”

The current design of the ferries show a closed car deck – but state officials originally said it would be open. That drew a lot of criticism from passengers who are familiar with Lynn Canal’s rough seas and spray. Boat architects Elliott Bay have advised against it. Nickum says it would cost slightly more.

“But the weather protection and the potential for lower maintenance, the recommendation was pretty strong back to the state and state’s accepted that recommendation and the design you see now has a closed car deck.”

The day boats would first serve Juneau, Skagway and Haines, carry 53 standard-size vehicles and 300 passengers, and travel at about 15 and a half knots.

There wouldn’t be much time in port.

“Rapid unload and load of the passengers and vehicles is important to meet this day boat concept,” Nickum said. “For rapid turnaround, need to drive through loading and unloading; not too much monkey motion around through side doors and what not. Really want to come on the bow, go off the stern or come on the stern and go off the bow.”

Juneau resident Bob Millard wonders how realistic that turnaround is. He rides the Alaska Marine Highway often, and also Washington State ferries, which are day boats.

“You know I’m concerned about crew fatigue and the time it takes to load in ports, like Haines, (where) you have a lot of tourists. The turnaround time I s probably a factor given all the traffic and inexperience of people loading and unloading.”

Millard says the potential delays would make that 12-hour day a very tight schedule.

The preliminary design study for the shuttle ferries came out last month and a public comment period is underway. This week’s meetings in Juneau, Skagway and Haines are strictly informational.

Marine Highway manager Falvey believes both ships will be operational by the middle of 2016. The funding comes from a previous Alaska Class Ferry project.

“We have approximately $118 million to work with and we feel very confident we can deliver both of these boats all said and done for that price.”

Falvey says the design team is now working detailed scenarios:

“What would the system look like when the first Alaska Class Ferry comes on. What would it look like when the second one comes on and there will still be mainliners running up through the canal.”

The public comment period on the preliminary design ends August 30. Comments should be made online through the Department of Transportation website.

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Sailing-New Zealand wins third America's Cup challenger race

By Ronnie Cohen

SAN FRANCISCO, Aug 21 (Reuters) – Emirates Team New Zealand breezed into the finish to win the fourth race of the America’s Cup challenger series on Wednesday, giving the heavily favored Kiwis a 3-1 lead over Italy‘s Luna Rossa Challenge.

It was the first race of the series on San Francisco Bay in which both high-tech 72-foot (22-meter) catamarans finished without one suffering a disabling mechanical breakdown. But Italy trailed New Zealand by 2 minutes, 17 seconds, so far behind that it barely looked like a contest.

The competition for the Louis Vuitton Cup was so uneventful a commentator asked New Zealand skipper Dean Barker if he saw his crew’s race of under 26 minutes as perfect.

“I thought the guys did a really, really nice job all the way around,” Barker responded. “We know we’re going to have to keep doing it and keep improving to stay in the competition.”

They also must keep their high-speed yachts in shape. Mechanical breakdowns – highlighted with the appearance of glue guns and hacksaws at the starting line – have plagued the series, amplifying concerns about the fragility of the double-hulled boats being used in this year’s version of the quest for the world’s oldest sporting trophy.

Last week, in three consecutive races one of the competitors was forced to stop, handing a victory to the team that managed to cross the finish line.

The winner of the Louis Vuitton Cup will sail against defending America’s Cup champion Oracle Team USA next month.

A second race was scheduled on the windy San Francisco Bay for Wednesday afternoon. (Editing by Jonathan Weber and Eric Walsh)


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