California imposes a sales tax on new boats and a use tax on used boats purchased within the State of California. While United States federal jurisdiction extends to 12 nautical miles from shore, and includes a 200-mile exclusive economic zone (EEZ), California’s territorial waters extend only 3 miles from shore. These territorial boundaries are set forth in The Federal Submerged Lands Act of 1953 (43 U.S.C. sec. 1301).
California law requires a broker to collect, or a buyer to pay, a sales tax on the purchase of a new boat or a “use” tax on the purchase of a used boat. The tax is substantial. The only exceptions to the imposition of these taxes are the purchase of an LLC which owns a boat, or to take delivery outside the territorial waters of the State of California.
To take advantage of the offshore delivery exception to the payment of a sales or use tax, several very specific rules must be followed. You should hire a knowledgeable attorney to ensure you follow the intent and requirements of the exemption. Some general guidelines for the offshore delivery are as follows:
- The Purchase Agreement (for a new or used boat) must state that an offshore delivery is a contingency to the contract;
- The offshore delivery GPS coordinates, date and time must be accurately recorded; and
- A proper Offshore Delivery Affidavit should be completed; and
- The purchaser must follow the 12-month test. California’s Revenue and Tax Code sec. 6248, incorporated into California Code of Regulations, title 18, sec. 1620, Interstate and Foreign Commerce, states that when a vessel is purchased and first functionally used outside of California and is brought back into California within 12 months from date of purchase, it is a rebuttable presumption that it was acquired for storage, use or other consumption in California and is subject to California’s use tax.
California’s tax code regarding the offshore delivery exemption is complicated. Penalties and taxes imposed for non-compliance with the letter of the law are significant. Consult a knowledgeable and competent attorney in this area of law before proceeding with an offshore delivery.