Lochner Law Firm, P.C.

Todd D. Lochner, Esq.
Greg Singer, Esq.

Lochner Law Firm, P.C.
Donner Building
91 Main St., Suite 400
Annapolis, MD 21401

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Maryland Tax Cap for Vessels over $300,000

The Maryland General Assembly has passed Senate Bill 90, a law that caps Marylandís vessel excise tax at $15,000 per vessel. For vessels under $300,000 the tax cap offers no benefit, but for vessels over $300,000 the tax savings can be enormous. The bill was proposed by John C. Astle, D-Annapolis, and the tax cap will last for three years.

The passage of the bill is a huge boon for yacht dealers, buyers, and maritime service professionals in Maryland. For years Marylandís vessel excise tax was far above that of Virginia (2% with a $2,000 cap) and Delaware (no tax whatsoever). Any vessel registered in Maryland, sold in Maryland, or used for more than 90 days in Maryland was is required to pay the tax.

As a result, many Marylanders and vessels cruising Maryland waters, especially luxury yachts, chose to register and dock their boats in Virginia and Delaware to avoid the higher tax rates. Besides depriving Maryland of tax revenue, the tax scheme also meant a loss of business for Maryland marinas, marine technicians, and others whose livelihood depends on servicing boats. In particular, the higher tax rate also heavily impacted the Annapolis Boat Shows, convincing many buyers to purchase new boats out of state instead of at the Show in Maryland. While the new law still imposes a higher tax rate on vessels than Virginia or Delaware, the tax cap will help create and retain maritime industry jobs in Maryland, and increase the stateís revenues. After Florida enacted an $18,000 cap on vessel excise taxes in 2010, the state generated over $13 million in additional revenue from vessel taxes.

The bill passed in an eleventh hour deal brokered between House Speaker Michael E. Busch and the Department of Natural Resources. DNR initially had concerns that the tax cap would deplete the Waterway Improvement Fund, which is funded by the excise tax. As a result, the bill was completely revamped in a Senate committee to eliminate the proposed $10,000 tax cap, and it appeared that no cap would be passed this year. After the bill was amended to raise the cap to $15,000, and to allot additional contributions to the Waterway Improvement Fund, DNR was convinced to back away from its initial opposition to the cap.

The excise tax on buying a yacht can often become a significant factor in the purchase price. For certain purchases, an Offshore Yacht Transfer through the use of an International Business Company (IBC) may be the best option to protect assets and mitigate possible tax liabilities. Tax laws and vessel regulations vary from state to state, and utilizing a maritime attorney may help navigate the law and can save a buyer thousands of dollars in taxes and fees.

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