State intensifies collection effort for boat-use tax

But marine employees fear boaters will shun Md. to avoid tariff

Fee is 5% of craft's value

September 30, 2001|By Greg Garland | Greg Garland,SUN STAFF

After years of largely ignoring the problem, Maryland is cracking down on boaters who try to evade a 5 percent "use tax" on vessels that spend most of their time on the state's waterways.

The campaign has significantly increased collections from people who were caught after skirting the law -- bringing in nearly $1.5 million for the fiscal year that ended June 30, up from less than $75,000 a few years ago.

"It's my responsibility to find people who haven't paid, and that's what I'm doing," says Dave Van Dyke, who heads the five-person Department of Natural Resources unit that is targeting tax cheats on the water.

Van Dyke says his agents are investigating 585 boats whose owners, they suspect, have failed to pay required taxes. Thousands more such boats likely are in marinas around the state, he says.

But some say the tax enforcement effort is misguided, and warn that it could cost Maryland in the long run by scaring off wealthy, out-of-state boat owners who otherwise might spend more of their time and money in Maryland.

"The point is, do we want people to not boat in Maryland because they are afraid they are going to have to pay this tax?" asks Chris Washburn, owner of a boatyard in the Southern Maryland town of Solomons.

The one-time use tax, based on 5 percent of a boat's value, is supposed to be paid on boats that are used primarily in Maryland, regardless of where they were purchased or where the owner lives.

The money generated -- $23.6 million last year -- pays for waterway improvements such as marking and dredging channels, marine policing and boat-safety programs. Normally, a Maryland resident pays the tax when buying a boat from a registered dealer. When buying a $500,000 boat, that means writing a check to the state for $25,000.

However, the tax does not have to be paid if the buyer signs an affidavit stating that the boat's "principal use" will be in another state.

Some sign such affidavits but keep their boats in Maryland anyway and hope they don't get caught.

Others buy or register their boats in a state such as Delaware, which has no sales or use tax, then sail them down the Chesapeake Bay to Maryland marinas, where they are kept and used most of the year.

To catch tax cheaters, Van Dyke's agents cruise Maryland waterways in a Spartan but sturdy 20-foot Boston whaler and look for "suspect boats."

These are boats that appear to remain in Maryland for lengthy periods, but which display no tax decal or state registration number to indicate that they have paid taxes in Maryland or any other state.

Out-of-state owners who keep boats docked in Maryland are entitled, in most cases, to deduct the amount of taxes they have paid to another state.

Patrolling the slips

As Van Dyke steered a patrol boat through the placid waters of an Annapolis area marina last week, his eyes scanned the dozens of vessels tied up at slips.

"There's one that's dirty, I bet," he says, pointing out a 52-foot cruiser worth more than $1 million. The boat, docked outside a condominium complex, shows its hailing port as Dover, Del.

Fran Keller, one of the agents in Van Dyke's unit, doesn't even have to consult his log sheet: "I've got that one down already," he replies.

The log sheet lists boats that Keller watches regularly to determine whether they are used mainly in Maryland waters. Back at the office, computer research is done to determine the boat's ownership and check whether any taxes have been paid on it.

Once Van Dyke's office is satisfied that a boat is principally used in Maryland, it sends the owner a letter asking for proof that the 5 percent use tax has been paid or that it is not owed because taxes were paid in another state.

If proof is not provided, an assessment letter goes out -- a bill for the taxes owed based on the boat's estimated value.

Besides having to pay the tax, a cheater who is caught can be assessed a penalty of up to 100 percent of the tax.

Van Dyke says there's no way to know for sure how many boaters are dodging the tax. But he says his experience in working limited areas -- mainly near Annapolis -- suggests that the problem is widespread.

In a typical marina, he says, as many as one in five boaters subject to the tax might have failed to pay it.

Another sign that the problem is extensive is the small number of large, expensive vessels that are titled and registered in Maryland.

DNR officials say that only 185 boats -- of about 220,000 titled in Maryland during the past 15 years -- were valued at $500,000 or more. That number is laughably small, according to boating experts, who say hundreds more vessels in that price range make their home in Maryland waters.

Bruce Gilmore, director of licensing and registration for the natural resources department, acknowledges that the boat tax enforcement effort was largely moribund until recently.

He says he shifted more staff into enforcement a year or two after taking his position in 1995. "I came to the conclusion we weren't collecting the tax as vigorously as we could," he says.

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