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?

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by Ryan J. Voorhees