90 Day Wondering

As you know, Governor Schwarznegger signed a new state budget at the end of September. As most boaters will probably also know, in addition he signed a bill that once again killed the so-called 90-Day Yacht Club. This was the provision that allowed folks buying boats to avoid paying use tax/sales tax — if the boat was kept out of state for at least 90 days. The new bill,  AB1452, requires that yachts — as well as airplanes, RVs and other high-ticket items — stay out of the state for at least one year to avoid the use tax. Although this would likely not affect the average guy, when the 90-Day rule was in affect in 2004, as many as 90% of buyers paying $200,000 or more for boats took delivery offshore and met the out-of-state requirement.

With the California budget in a perennial shambles it’s hard to blame state politicians for appearing to do the ‘right thing’. And on the surface, AB1452 seems like it would bring more money into the state coffers. In reality, the bill will very possibly lose the state both money and jobs. Consider:

• Fewer people who can afford high-end boats will buy them here.
• Buyers opting to meet the one-year-away rule will hurt the state marine industry by berthing and having work done elsewhere.
• There are other ways to legally avoid paying use tax, such as registering the boat under an offshore corporation. Last time we looked, you could form an offshore corporation online for only a few thousand dollars, which is nothing for someone facing $50,000 in use taxes.

Unlike bills that came before it, AB1452 has no sunset clause, meaning it is theoretically ‘permanent’. But hey, so was Prohibition. We will have more on the end of the 90-Day Yacht Club in the next issue. In the meantime, we would like to hear from those who have been affected by it, who have used the 90-Day Rule, those who have changed buying plans since its repeal, and what legal alternatives California yacht buyers have in the face of this new legislation. Email comments and contacts to John.