Yacht Tax Savings: Washington’s Marine Tourism Bill is Signed into Law—Boon to Super Yacht Entries

Larger yachts are typically owned in entities for a variety of reasons, including liability protection. Until recently, non-resident entity-owned yachts entering Washington waters fared less well with the state use tax and registration requirements than did non-resident individually-owned yachts.

The tide is changing—with the recent passage of the Marine Tourism Bill. Effective September 1st, under this new law, non-resident entity-owned yachts will be able to stay in Washington for up to 180 days in any 365-day period without the need to pay the one-time use tax or annual registration fees. The savings from this exemption are significant since combined taxes and fees can total 10 percent of the value of a boat.

Peter Schrappen, Government Affairs Director of the Northwest Marine Trade Association (“NMTA”), wrote about the organization’s five-year lobbying efforts that eventually led to Governor Jay Inslee signing the Marine Tourism Bill into law:

“What a win! This accomplishment is a culmination of five years of coordinated efforts. Persistence pays off, especially when you have bipartisan champions like Sen. Barbara Bailey (R) and Rep. Steve Tharinger (D) leading the effort with their colleagues along with Governor Inslee’s support. Everyone knows how beautiful our cruising area is; now we are turning the corner with laws that make it easier to visit.”

The new law, in effect, would allow non-resident entity-owned boats to come into the state for personal (non-business) use without incurring the previously charged taxes and fees, provided the vessels are between 30 and 164 feet in length. And because the exemption is applicable only to non-residents, no Washington State resident individual can have more than a 1 percent interest in the owning entity, either directly or indirectly through tiered ownership structures.

Before the Marine Tourism Bill, non-resident entity-owned yachts could be in Washington for only 60 days in any 365-day period without tax exposure. In contrast, non-resident individually-owned yachts have for years been able to stay in Washington for 180 days in any 365-day period, provided permits were obtained.

Non-resident owners, regardless of status as individuals or entities, can obtain permits before the 61st day in Washington if the vessel is currently registered in the state of principal operation or documented under federal law, and has been brought into Washington for personal use. Permits are good for 60 days.

The permit fees for non-resident individually-owned boats are a flat $25, and for non-resident entity-owned yachts the permit fees are $25 per foot for vessels between 30 and 99 feet, $30 for vessels between 100 and 120 feet in length, and $37.50 for vessels between 121 and 164 feet in length. A non-resident entity vessel owner may not obtain more than two permits within any 36-month period.

Fred Robinson is an attorney in Seattle with the firm of Carney Badley Spellman, P.S. and works closely with yacht owners.

Pacific Northwest Cruising

The opening of the Northwest Passage along the ice filled northern coast of North America has created a new route for accessing the Pacific Northwest cruising grounds.

Historically, yachts from south Florida were required to transit the Panama Canal, either wet or by transport, to Seattle or Vancouver, British Columbia, Canada.

Boaters have always been drawn to the Northwest by its: rugged scenery; marine and shoreline wildlife viewing; excellent fishing (salmon, halibut and Dungeness crab to name a few species); and long summer days. On June 21st, the summer solstice, the sun sets at 11:42 p.m. in Anchorage, Alaska.

Pacific Northwest cruising frequently begins with entry into the Strait of Juan de Fuca from the Pacific Ocean, forming the international boundary between the U. S. and Canada. Cruising south, boaters enter Washington State’s Puget Sound, home to Seattle 60 miles away.

Puget Sound waters, particularly in and around the San Juan Islands, are home to migrating Orca whales. The area is bounded by the snowcapped peaks in the Cascade and Olympic mountain ranges.

Washington is home to many superyacht builders, including Christensen, Delta, Nordhavn, Northcoast, Northern Marine and Westport. The state also has plenty of superyacht repair facilities to ready vessels for trips to the south Pacific, south Florida or on to Asia.

The Northwest Marine Trade and Northwest Yacht Brokers Associations are good sources of information on Washington State cruising.

After leaving Seattle, boaters can travel north 75 miles to Victoria, British Columbia, Canada or 135 miles to Vancouver, B.C. British Columbia is home to Crescent, Queenship and West Bay Sonship shipyards. Repair facilities are also available.

As boaters travel north through the B.C. Inside Passage with Vancouver Island to the west and the British Columbia mainland to the east, big city life is quickly left behind. It is replaced with tidewater estuaries, seemingly endless evergreen forests, seals and sea birds. Sea kayaking and mountaineering are popular attractions for fitness minded boaters.

As boaters cruise north through British Columbia waters and enter Alaska, the first major destinations are normally Ketchikan or Wrangell, after clearing Customs. Both are about 60 miles from the Canadian border.

Ketchikan is known as the gateway to Alaska. The Southeast Alaska Discovery Center in Ketchikan is a good place for boaters to get statewide information. Some boaters take on naturalists for the journey.

Southeast Alaska is home to national parks offering pristine wilderness and excellent wildlife viewing. The Wrangell-St. Elias National Park and Preserve is the largest U.S. National Park, six times the size of Yellowstone National Park. Four major mountain ranges meet there, and include nine of the sixteen highest peaks in the United States.

Alaska is the largest state in the union: one-fifth of the lower forty-eight. Alaska is larger than the next three largest states combined.

Most boaters cruising the Pacific Northwest during the summer season will not venture north of Southeast Alaska. The cruising grounds between Ketchikan in the south and Skagway in the north are filled with protected bays, islands and marinas offering moorage. It comprises an area roughly 350 miles long by 50 miles wide.

The marine wilderness of Glacier Bay National Park and Preserve is a must see. It includes tidewater glaciers, snowcapped mountain ranges, and freshwater rivers and lakes. The glaciers are remnants of the Little Ice Age that began 4,000 years ago.

Permits are required to enter Glacier Bay by private boat, and applications must be made within 60-days of proposed entry.

Seaplanes are abundant in Alaska, offering access to otherwise inaccessible fishing grounds on rivers and lakes away from the coast. The salmon fishing grounds on rivers attract numerous bears, which gorge on salmon returning from the sea, storing fat for their winter hibernation.

Local taxes are an issue for boaters everywhere. In the Pacific Northwest, exemptions apply for non-resident boaters in Washington and British Columbia waters. Alaska does not have a statewide sales tax, and its city and borough taxes are capped so low that they are not of concern.

Pilotage rules apply throughout the Pacific Northwest and vary in the three areas. Depending in part on the registration and size of yachts, and captains’ familiarity with Northwest waters, pilotage exemptions exist. Some jurisdictions allow captains with local knowledge to be brought onboard for extended cruises, to eliminate the need for pilots.

Fred Robinson is an attorney in Seattle with the firm of Carney Badley Spellman, P.S. and works closely with yacht owners.

Florida Yacht Brokers Association Presentation

On March 9th, I will be speaking to the Florida Yacht Brokers Association, Charter Management Group in Ft. Lauderdale, Florida. My topic will focus be Legal Issues with Yacht Charters in Washington, British Columbia, and Alaska waters.

31st Annual Alaska Association of Harbormasters and Port Administrators Conference

I will be speaking at the 31st Annual Alaska Association of Harbormasters and Port Administrators conference on October 25-29, 2010, in Wrangell, Alaska. This year’s event is entitled “Providing Economic Opportunity,” and the title of my presentation will be “Legal Issues.”

For additional information please go here.

30th Annual California Yacht Brokers Association Seminar

I will be presenting at 30th Annual California Yacht Brokers Association (CYBA) seminar on June 2, 2010. This year’s event, entitled Yacht Sales & The Law XIII, will be held at the Southwestern Yacht Club in San Diego, California. The title of my talk is “Yacht Leasing and Taxation from Oregon to Alaska.”

You can find out more about the seminar here.

2010 Real Property, Probate and Trust Section Midyear Meeting

I will be giving a presentation entitled, “Washington State Real Estate Excise Tax; B & O, Sales and Use Taxes: Where Do We Go From Here?,” at the 2010 Real Property, Probate and Trust Section Midyear Meeting and Seminar being held June 4-6, in Vancouver, Washington. Additional program information can be found here.

Frederick M. Robinson is an attorney concentrating in the practices areas of yacht and vessel transactions and taxation at the law firm Carney Badley Spellman, P.S. in Seattle, Washington. The firm’s yacht services include: state sales and use tax planning, tax free exchanges, yacht construction, acquisition, sale, charter and related agreements, registration and documentation, crew agreements, yacht leasing/chartering, and tax audits and appeals. Mr. Robinson can be reached at Carney’s Seattle, Washington office at 701 Fifth Avenue, Suite 3600, Seattle, Washington 98104, telephone number (206) 607-4154, facsimile (206) 467-8215, email robinsonf@carneylaw.com.

Offshore Yacht Registration/Flagging: In General

Every yacht has to be registered in an internationally recognized jurisdiction to provide proof of nationality and a record of ownership. Vessel registration (or flagging) is the process by which governments maintain a centralized record system where vessel titles, mortgages and liens are recorded. The yacht assumes the nationality of the jurisdiction where it is registered and is subject to the laws of that country.

Registries are generally of two types: national or open. A “national registry” is generally only available to citizens of a specific country. The United States and France have national registries. An “open registry” is available to citizens of any jurisdiction.

Companies and private individuals gain advantages and legal tax savings by registering their yachts in an appropriate jurisdiction, which also provides confidentiality and the protection and privileges offered by such jurisdiction. Determining the jurisdiction which is most suitable for registering a particular yacht depends on a number of factors including:

  • Whether particular provisions of a country’s shipping act and registry rules meet the owner’s needs
  • Taxation of the vessel and any gain on sale, including the tax implications to the owner of compensation paid to the crew
  • Stability of the country of registry
  • Reputation of the registry
  • Cost to register the vessel, including initial registration costs and ongoing costs
  • Whether the registry is acceptable to a lender
  • Recognition of the form of a business entity and its ownership structure
  • Crewing requirements
  • Whether safety standards satisfy insurers
  • Confidentiality laws

Frederick M. Robinson is an attorney concentrating in the practices areas of yacht and vessel transactions and taxation at the law firm Carney Badley Spellman, P.S. in Seattle, Washington. The firm’s yacht services include: state sales and use tax planning, tax free exchanges, yacht construction, acquisition, sale, charter and related agreements, registration and documentation, crew agreements, yacht leasing/chartering, and tax audits and appeals. Mr. Robinson can be reached at Carney’s Seattle, Washington office at 701 Fifth Avenue, Suite 3600, Seattle, Washington 98104, telephone number (206) 607-4154, facsimile (206) 467-8215, email robinsonf@carneylaw.com.