New York Is Open for Boating: A Sales and Use Tax Update

Fourth of July has come and gone. This year, nonresidents (more on this later) who brought a new boat to New York for the first time were hit with a breath of fresh air—and I’m not talking about the fresh air from [insert any of New York’s many boater-friendly bodies of water]. In years past, nonresidents who purchased a boat outside of New York and later brought that boat into New York were hit with full New York use tax on the purchase price or fair market value of that boat. As part of its 2015 budget, the New York State Legislature amended the sales and use tax rules applicable to boats.

But first, a note on residency. Income tax residents purchasing a boat in New York owe sales tax on their purchase and can skip this paragraph. However, income tax nonresidents who plan to purchase a boat outside of New York and later use it in New York, pay attention. New York imposes its “use tax” on “residents” only. However, residency for use tax purposes is defined much differently than it is for personal income tax purposes. Namely, to quality as a resident for use tax purposes, one must only maintain an abode in New York (i.e., there is no requirement that the abode be maintained for substantially all of the year or that the taxpayer spend more than 183 days in New York).

In years past, we may have advised those purchasing a boat outside of the state to keep that boat well outside of New York waters to avoid a hefty use tax bill. However, for new purchasers of luxury watercraft, their tax bill will now be a lot lower than it would have been in years past. Here are some of the basics of the new rule:

1. New York’s sales or use tax is now imposed on only the first $230,000 of taxable base, regardless of whether the relevant taxable base is purchase price, fair market value, or fair rental value. 
2. New York will continue to give taxpayers a credit against use tax for the sales tax paid on the boat to another state. However, that credit is limited to the amount of tax due and paid to the other state on the same $230,000 cap. For instance, even though Florida limits its sales tax on boats at $18,000, a taxpayer who pays $18,000 in sales tax to Florida will only get credit for the 6% Florida sales tax paid on New York’s $230,000 cap (or $13,800). 
3. New York’s new rules define taxable “use” much more generously. Under the old rules, a taxable use occurred as soon as the boat entered New York. Under the new rules, a taxable use doesn’t occur until the first of the following events:

• The use of the boat in New York for a period of 90 consecutive days;
• The date upon which the boat is required to be registered under the Vehicle & Traffic Law (boats registered in another state are not required to be registered in New York unless kept here for 90 consecutive days); or
• Actual registration.

In short, happy boating!   

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