Should the sales tax on yachts be capped?

New Jersey lawmakers want to cap the sales tax paid by yacht buyers in hopes that it will prop up the state’s faltering marine industry. But opponents could sink the proposal; they say it’s a giveaway to the rich.

By ensuring boat buyers pay no more than $20,000 in sales tax, bill sponsors Sen. Jeff Van Drew, D-Cape May, and Sen. Jim Whelan, D-Atlantic, said New Jersey marinas would better compete with states such as Florida that have similar limits.

“It’s the classic (saying), 100 percent of nothing is nothing,” Whelan said of his effort to lower the sales tax. “The pattern we see now is wealthy boat buyers are buying out of state.”

New Jersey has seen boaters’ spending and registrations plummet the past decade at least in part because of the damage caused both by the Great Recession and superstorm Sandy.

But the bill from two Democratic senators – who have previously supported a higher income tax on millionaires – caused liberal policy analysts to do a double-take. The left-leaning New Jersey Policy Perspective think tank noted that state faces a budget crunch and needs all the tax revenue it can get.

Once the state can meet its pension obligations, pay for transportation improvements and ease the tax burden on the middle class, “maybe then it could consider a proposal to give a tax break to folks buying expensive boats,” Gordon MacInnes, the group’s president, said.

The lawmakers say they are trying to plug a proverbial leak. New Jersey’s boat registrations fell from 209,419 in 2002 to 160,345 a decade later, or 23 percent, according to the National Marine Manufacturers Association, a trade group. By comparison, U.S. boat registrations fell nearly 6 percent during that time.

It isn’t clear how much tax revenue the state receives from luxury boats. But total expenditures on power boats and ancillary services in New Jersey have dropped 37 percent during the past decade, the association said.

Consumers pay a sales tax in the state not where they buy a boat, but where they register it, Bill Bergin, president of Sandy Hook Yacht Sales in Sea Bright, said. But New Jersey has increasingly become less competitive.

For example, Florida in 2010 capped the amount of sales tax consumers paid on a boat at $18,000. And New York Gov. Andrew Cuomo recently proposed a budget that exempts luxury yacht buyers from a portion of the sales tax.

(The results of Florida’s experiment with a sales tax cap are mixed. Its recreational boat registrations fell nearly 5 percent from 2010 to 2012. But total expenditures rose 55 percent during that time, according to the National Marine Manufacturers Association.)

New Jersey marina owners said the Garden State risks an exodus. A consumer who buys a $500,000 boat in New Jersey would have to pay $35,000 in sales tax, based on the state’s 7 percent sales tax. It means he would save $17,000 by registering it in Florida instead.

“People who can afford to buy boats are being competitive about where they are doing it,” said Rob Nixon, a lobbyist for the Marine Trades Association of New Jersey, a trade group.

Some observers said the bill is regressive. A consumer who buys a $1 million boat would pay the same sales tax as a consumer buying a $300,000 boat. When the state is scrambling to find a way to, say, replenish the Transportation Trust Fund, it looks bad, MacInnes said.

Since New Jersey is years away from finding the revenue it needs for more pressing matters, “policymakers should give no serious thought to the plight of yacht buyers,” he said.

Van Drew and Whelan said in interviews, however, that they still supported ideas like raising income taxes on millionaires.

“This is where we have an industry that is starting to take a beating,” Van Drew said. “People who fix the boats, build the boats, store the boats, they’re not wealthy people.”

Michael L. Diamond; 732-643-4038; mdiamond@app.com

Powerboat, engine, trailer and accessory expenditures in New Jersey:

2013: $260 million

2012: $254.3 million

2011: $228 million

2010: $183 million

2009: $225.8 million

2008: $297 million

2007: $347.5 million

2006: $414.7 million

2005: $426.6 million

2004: $416.6 million

Source: National Marine Manufacturers Association


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