Sales Tax Slice: Aspiring New York Yacht Purchasers, Your Ship Has Come In!

SALES TAX SLICE: ASPIRING NEW YORK YACHT PURCHASERS, YOUR SHIP HAS COME IN!

Wealthy New Yorkers might soon see some new faces at the
local yacht club. Starting in June, New York will limit the sales tax it
charges on expensive large boat purchases, entering the state into a competition
that now includes Florida, Maryland, and other coastal states.

The change comes from Part SS of New York’s recent final
budget bill
. Part SS caps at $230,000 the receipts on which New York imposes
sales tax for sales of vessels, as noted recently in the Daily Tax Report. So if a buyer were to purchase, say, Eclipse—one
of the planet’s most expensive private yachts, reportedly valued at up to $1.2
billion
—then New York would calculate sales tax as if it were just a $230,000
boat, with a resulting sales tax of only about $19,000. Same result (about $19,000
tax) on a purchase of a boat that actually does sell for $230,000. So the
exemption is a big departure from the current rules.

Not surprisingly, observers erupted into a frenzy
after discovering the language. “Sales tax exemptions for people buying luxury
yachts and private airplanes reflect misplaced priorities especially when the
tax credits for low- and middle-income taxpayers advanced by the governor did
not make it into the final budget,” seethed
the Fiscal Policy Institute in its Summary
of Tax Provisions in Final [New York] FY 2015-2016 Budget
. “Those looking
to purchase yachts can rest knowing that the folks in Albany are thinking of
them,” sneered
Vanity Fair. “Government for sail?” asked
the New York Post. The common theme: that the new exemption is a giveaway to
the rich.

Is it? Industry representatives think not. They argue that
the measure will create
in-state jobs
. They also argue that New York is missing out on tax revenues
because boat-buyers are shifting their transactions to tax-friendly states like
Florida or Maryland, which have had competitive boat-purchase exemptions for a
few years now. In Florida, the tax cap has been $18,000
since mid-2010. In Maryland, it has been $15,000 since
mid-2013. And in New Jersey, although lawmakers have not yet enacted
legislation and are facing the same populist resistance
as their New York counterparts, they are considering a $20,000
cap. Everywhere, the argument is the same: that low tax revenues are better
than no tax revenues.

The yacht-exemption debate is a perfect opportunity to step
back and examine tax policy more generally. Which is more important: a state’s
absolute tax revenues or who actually pays that tax? Tax caps enable states to
compete better for precious revenue dollars, but exempting purchases accessible
only by the rich makes a tax system more regressive—one into which the poor pay
a greater percentage of their income than the wealthy.

The Institute on Taxation Economic Policy opens its
2015 Who Pays? A Distributional Analysis of the Tax Systems in All 50 States
by stating that although “[e]conomists have widely discredited trickle-down
economic theories,” their apologists continue to “repackag[e] those
philosophies and push[] for lower state tax rates for wealthy individuals,
businesses and corporations.” But as we see here, interested parties are
continuing the debate. Surely it will continue into the next presidential
election season, too. So when we hear candidates discuss new-jobs numbers, lowering
rates and broadening the base, and more, we can think back to the multistate yacht-buying
issue as a case study in determining which the more important tax policy is:
competitiveness or who pays.

Continue the discussion on LinkedIn:
Which is more important in a tax system: competitiveness or who pays?

For more information about state tax issues, sign up for
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Library.

by Ryan J. Voorhees

 


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