[Psml] SOUTH CAROLINA 10 PERCENT YEARLY TAX

[Paul R. Soucy]

Thought South Carolina was bad on taxes?  Read this from a Maryland Lawyer.

Paul



Maryland's winter of discontent

(because that's when the taxman comes)


Editor's note: With controversy roiling over South Carolina's boat tax 
policy, we thought we would ask the experts from the Annapolis law firm of 
Lochner and Schwenk to explain how taxes work in some of the big boating 
states along the Waterway.

By J. Dirk Schwenk

Yes, its that time again, the winter ducks arrive, the cold fronts roll in, 
and Boat Tax Enforcement Division on the Maryland Department of Natural 
Resources wraps up its seasonal investigations and issues vessel tax 
assessments. You will know it if you get one, it says "Assessment of Tax" 
and it's printed on colored paper. It notifies you that you have 30 days 
from its issuance to appeal or it becomes final-and you do not have much of 
a remedy if you do not agree with its contents. Do not dawdle, the 30 days 
is a real deadline.

For the uninitiated, this paper can be quite a shock. It is the culmination 
of an investigation which typically includes monthly surveys of your boats 
location, an analysis of its fair market value, and an investigation into 
its ownership, including the ownership of any corporation that may it may be 
titled to. For a $100,000 boat, the assessment is an unexpected bill for 5 
percent of the value ($5,000) plus a 10 percent penalty ($500) plus interest 
running at 18 percent from the date that the boat became taxable, up to 
three years.

Interest can easily eclipse the amount of the penalty, and so the bill can 
easily reach and surpass $6,000 on a $100,000 boat. Scaling up, the bill on 
a $1 million boat can easily reach and surpass $60,000. If for any reason 
the DNR believes that tax was avoided on the basis of fraud or gross 
negligence, the penalty will be 100 percent of the tax, and so the total 
assessment will be growing toward $12,000 or $120,000.

Most boaters will not face such an assessment because they will have paid 
sales tax on their vessel at the time of purchase or they will have paid tax 
when they registered and titled the vessel. Such is the case for a runabout 
purchased from a Maryland dealer or titled with Maryland. There are, 
however, lots of boats that are not subject to sales tax at purchase, 
including boats purchased in non-tax states (i.e. Delaware or Rhode Island), 
boats purchased abroad, home-built boats and some commercial vessels.

If those boats are federally documented, they are not subject to state 
titling laws, and they may not have been legally obligated to pay tax. This 
is the favorite bait of boat tax enforcement: the federally documented 
vessel that has not previously paid sales or use tax to any state. The 
second favorite bait? The boat that is registered to a non- or low-tax state 
such as Virginia, but that is principally used in Maryland. If you are in 
one of those categories (and you have not yet fallen asleep) you should 
definitely continue reading.

Maryland taxes boats in three main instances, all of which are subject to 
certain caveats and exceptions. Those instances are:

1) a boat that is purchased in the State;

2) a boat that is titled in the state; and,

3) a boat that is principally used in the state during any particular 
calendar year, assuming that it is in the State more than 90 days in that 
year.

The first item is pretty clear. If the money and the boat change hands in 
this state, it's a Maryland purchase, if parts of the transaction take place 
out of state, well, it depends. The second item is clear. If you apply for a 
Maryland title (or you are required by law to do so), tax is due. The third 
item is the one that causes the most consternation for boaters -Principal 
Use.

Under Maryland law a boat is in principal use in the state or territory of 
the United States in which it is used most during a calendar year. Thus if 
you use it 100 days in Maryland, 200 days in the BVI and 50 days in Florida, 
the state of principal use is in Maryland. BVI does not count (it's not a 
state of the United States), and Florida has less days than Maryland.

Things get a bit tricky from that point, though. Days only count in Maryland 
if the boat is "in use." In use does not mean its being used (in the sense 
of operating it), but means by definition any time that it is in the water 
or any time that it is kept in a structure in readiness for use. Thus (stay 
with me here) a boat that is in Maryland, outside, and out of the water is 
not in use; but a boat that is in the water but not being used, is in use. 
Also, it is generally recognized that a boat that is in the water but 
winterized is not in use for principal use analysis, but it is considered 
that a boat on a trailer, indoors or out, is in use.

Confused? No worries ... so is everyone else.

So what should you do if you get an assessment, or perhaps more importantly, 
if you would like to avoid getting one? First, you should be aware that 
Maryland recently extended its cruising window to 90 days-if the boat was 
not purchased in Maryland, you can cruise for no more than 90 days without 
facing tax liability, even if you do not spend more time in another single 
state.

Second, you should be aware that there are exceptions for boats that are out 
of the water, winterized, or undergoing significant repairs. The details of 
those exceptions will have to wait for another article, but they should be 
considered if the boat is going to be (or has been) in Maryland for an 
extended stay. Third, you can be sure to keep (and keep evidence of keeping) 
your boat in another state for more days than in Maryland. Finally, if you 
receive an assessment, be sure to act quickly. If you have good defenses, 
and you do not raise them in time, they will not be so good.

If you are going to need counsel-that is, if you may have a defense and 
there is a significant amount at issue-identify one who knows this area, 
hire them in time get an appeal in the 30 day deadline, and do so before 
contacting the DNR yourself. I often see people revealing facts that were 
better left unsaid, or paying tax that was not owed. A little bit of good 
advice can save a lot of heartache in the long run, it may also be able save 
money in any negotiation if tax must be paid.

(This explainer comes courtesy of by the law firm Lochner and Schwenk, LLC. 
The Firm has been active in maritime and Admiralty law since 1999. It is 
based in Annapolis, MD, and focuses on issues of concern for vessel owners, 
marine businesses and those that live, work and play on the water.)
-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: image/jpeg
Size: 2837 bytes
Desc: not available
Url : http://www.usps.org/pipermail/psml/attachments/20071201/eddfcdcb/attachment-0001.jpe