Bailing out yachts?

Our view: Reducing Maryland's excise tax on boats to aid struggling dealers and marinas may sound appealing, but it doesn't pass inspection

September 04, 2012

One of the great summer pleasures that comes with living in Maryland is the opportunity to get on a boat and paddle, motor or sail your way around the Chesapeake Bay and its tributaries. Few places in the U.S. are better suited for boating, and the state's geographic blessing has produced economic rewards for its citizens — an estimated 35,000 jobs produced by a $2 billion industry.

But these are not the best of times for those in the boating industry. The economic recession of 2007 hit hard, and the recovery has been slow. Sales of new vessels are down, and marina owners say dealers aren't the only ones hurting.

In response, some are calling on the Maryland General Assembly to consider reducing or capping the state's excise tax on vessels next year. Similar to the tax levied on motor vehicles, the 5 percent vessel excise tax is normally applied at the time of purchase in Maryland. When an owner moves a boat into the state, he or she is also responsible for paying the excise tax on the boat's fair market value within 30 days. Boats registered out of state could be subject to the tax if they remain in Maryland waters longer than 90 days (and can't prove the boat is kept out of state the majority of the year).

The Marine Trades Association of Maryland and others have long contended that the tax makes their industry less competitive with other states, particularly Delaware, which has no boat excise tax just as it has no sales tax. The tax may have only a modest influence on average boats — the owner of a $10,000 vessel would owe $500 — but high-end vessels are another story. In the case of a $1 million yacht, the bill comes to $50,000 (although it's often rolled into financing).

Lower or cap the tax, and what the state loses in direct revenue, the idea's supporters say, will be made up in economic activity. Rich boat owners keep their vessels in Maryland, use local marinas, avail themselves of boat yards and related services, and everyone comes out ahead — or so the theory goes.

While that idea may appeal to boat dealers and marina owners who risk nothing if the excise tax is reduced, it may not sound so great to average boat owners or even middle-class Maryland taxpayers. It would be a tax cut for the super-rich who, incidentally, represent a very small percentage of the boating public. And it would also raise a question: If boat owners get a break, why not luxury car owners or high-end furniture buyers, both of whom pay a 6 percent tax?

Boaters have essentially already received a break on excise taxes when the legislature chose not to raise the tax to 6 percent when the sales tax was increased from 5 percent to 6 percent five years ago. Car owners didn't get that same benefit. Nor did furniture buyers.

But here's the real problem. The excise tax is the sole source of funding for Maryland's Waterway Improvement Fund, which pays to maintain public navigation channels, hundreds of boating facilities and thousands of navigation buoys and markers. Cut funding, and boats will find much of the waterways inaccessible as channels fill up with silt.

Last year, the fund took in $15.4 million. This year, it was down to $14.2 million. The cost to maintain existing boating infrastructure? The Maryland Department of Natural Resources pegs that figure at $41 million and climbing thanks, in part, to recent cutbacks at the U.S. Army Corps of Engineers.

It's clear a new source of revenue for the fund is required. But when the DNR proposed raising boater licensing and registration fees earlier this year to do just that, the legislature balked and so did the industry. Never mind that some of those fees haven't changed since the 1960s, and some 30,000 small boats face no registration fee at all. A $2 titling tax is quaint but it doesn't pay the bills.

Would the boating community prefer the money to come from the state's General Fund? With the state still facing an annual structural deficit in the hundreds of millions of dollars, that's highly unlikely. Boating needs to be self-sustaining. The real debate ought to be on how best to finance dredging and other needed improvements.

Meanwhile, lawmakers will need better evidence than anecdotal stories about a handful of rich people moving their boats out of state before tinkering with the excise tax. Virginia has capped its vessel excise tax but subjects boats to a substantial personal property tax each year. Delaware is cheaper but it doesn't have the scenic waterways of Maryland (or the hundreds of miles of channels to maintain).

The underlying cause of the boating industry's woes is not the excise tax but the economy. Boats are a luxury, not a necessity. And most recently, high fuel prices have caused some boaters to keep their vessels on dry land. If there are steps Maryland can take to help the industry, they ought to be explored. But neglecting boating infrastructure ought not to be one of them.

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