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 a free trial on Bloomberg BNA’s Premier State Tax Library.
by Ryan J. Voorhees
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)