Boat owners beware: Don’t overlook your sales and use tax obligations.
TRENTON, NJ - New Jersey Division of Taxation Investigators actively patrol New Jersey’s inter-coastal waterways and marinas to search for tax evaders who have failed to pay sales and use tax on their vessels at the time of purchase or first use in New Jersey. Over the past two years, investigators have recovered $2.3 million in sales and use taxes from boat owners in New Jersey.
Boats purchased by New Jersey residents from an in-state dealer are subject to the 7 percent sales tax. Boats purchased from an out-of-state dealer or non-dealer, in what is considered a “casual sale,” are subject to use tax the first time the boat is used in New Jersey or upon registration, unless the purchaser paid the 7-percent tax to another state.
Out-of-state residents also may be subject to the sales tax if they are defined as residents under the Sales and Use Tax Act. For example, people who maintain a place of abode in New Jersey are required to pay tax on their vessels used in New Jersey. A boat does not have to be registered in the state to be subject to tax in New Jersey.
New Jersey’s tax rules for boat owners mirror similar rules in other states. Boat owners should be aware that tax officials in neighboring states often trade referrals and information.
Some people purchase a boat in another state but fail to pay the required sales tax when they bring it back to New Jersey. For example, in August, investigators inquired about a Pennsylvania resident who docked his vessel in Wildwood. He met the New Jersey registration requirement but failed to remit the use tax on his vessel. Investigators from the Division of Taxation, accompanied by the New Jersey State Police, seized the vessel until the owner was able to raise $4,222, including penalty and interest, to release the vessel.
In July, a Taxation Investigator observed a Delaware-registered vessel near the Canyon Club Marina in Cape May. The boat’s owner, when contacted, was advised that he was not in compliance. He agreed to pay $14,496.
During that same month, Taxation Investigators were canvassing a marina in Cape May when they discovered the owner of a charter fishing boat had taken an improper sales tax exemption when he registered his vessel as a head boat. In order for such a craft to be tax-exempt as a head boat: passengers must pay individually and board first come, first serve; the vessel must be certified by the U.S. Coast Guard to carry more than six passengers; anglers must be permitted to fish at any time, and the vessel must be primarily engaged in sport fishing and sail on a daily fishing schedule for a designated species set by the captain. The investigators determined that the vessel operated as a charter fishing boat, which is subject to use tax. The owner paid $13,020 in back taxes.
In November of last year, a New Jersey resident was found to have formed a Delaware corporation to purchase a vessel he docked in Brielle in an attempt to evade the sales tax. Because the company had no other purpose than to shield the buyer from paying sales tax, the owner was assessed the tax plus penalty and interest totaling $87,143.