Understanding the Sales and Use Tax on Marine Vessels

The sales and use taxes on marine vessels is sometimes confused with duty and importation tax, but it is not the same system. Unlike duty, which is imposed by the federal government at the boat’s port of entry, the sales and use taxation is assessed at the state and local level and applied at the time the boat is purchased.

State sales tax is typically collected at the time of purchase if the vessel was acquired through a dealer or broker. If not paid at this time, it is remitted at the time of registration as a use tax. Although this process sounds straightforward, there are complicated issues surrounding ownership and use of boats that have been manufactured outside the U.S. and/or are foreign-flagged.

People generally opt to flag or register their boats offshore for one of the following reasons:

  • To avoid paying the state sales and use tax
  • The owner is not a U.S. citizen (only Americans may document their vessel with the Coast Guard)
  • The boat is over 300 gross tons, making it subject to difficult and impractical local regulations

Foreign-flagged boats normally receive a cruising license from U.S. Customs and Border Protection, which prevents most states from trying to collect use tax when the vessel is in state waters. This step also exempts the boat from formal clearance and entry procedures.

Yacht owners are therefore exempt from use tax by registering their boats offshore and bringing it to Florida under a cruising license,  but if they decide to sell, Florida state law does not allow vessels under a cruising license to be put on the market unless the relevant use tax is paid or a registered brokerage assumes care and control of the boat. This is a complication that many boat owners are unaware of until they attempt to sell.

Sales and use tax can pose challenges for owners of foreign-flagged vessels. If you find yourself in a challenging situation or require assistance with the importation of a boat manufactured overseas, contact Howard S. Reeder today. We have a Customs Brokerage and Marine Documentation Division that can answer your questions about applicable taxes, address your concerns, and help you with any issues that do arise regarding your boat.

Howard S Reeder Inc