New Luxury Tax Trimming Boat Sales
by Penny Singer
THE 10 percent excise tax on pleasure boats, coming on top of the recession, is helping to scuttle parts of the local boating industry, say those who make their livings building, selling and maintaining the boats.
The luxury tax, which began Jan. 1, is applied to that part of a new boat’s sale price over $100,000. The National Marine Manufacturers Association, the industry trade group, estimates that from 10,000 to 15,000 boats nationally will be subject to the tax.
In Mamaroneck, Howard McMichael Jr., who is 52 years old and joined the family business, McMichael Yacht Brokers, in 1962, said his business has been hit by the tax and the recession. Sales of New Boats Down
“In 1989, we sold 30 boats costing over $100,000,” Mr. McMichael said. “We sold 8 last year in that category and so far this year, we’ve sold 2.”
The business was founded in 1935. “Traditionally, we have always sold a mix of new and used boats, with the bulk of sales, or about 60 percent of them, in new boats,” he said. “Today, new boat sales account for only 10 percent of our business.”
According to the manufacturers association, new boat sales, which reached a high of 749,020 in 1988, dropped to 504,100 in 1990 and are expected to drop even more sharply this year. ..
Falling Tax Would Lift All Yachts
by Agis Salpukas
The nation’s luxury-boat builders, many clinging to their businesses after two years of plunging sales, finally got some good news last week.
President Bush, in his budget proposals, asked Congress to repeal the 10 percent luxury tax on yachts priced at more than $100,000 (and also on private planes that cost more than $250,000). The repeal, which Congress is likely to approve, would be retroactive to Feb. 1.
Since the tax took effect in January 1990, hundreds of builders of large and small boats have spoken of it as a stake driven into the heart of an industry already suffering from the recession, tighter bank rules on financing and fallout from the gulf war.
In the last two years, about 100 builders of luxury boats — recreational craft costing more than $100,000 — cut their operations severely and laid off thousands of workers. Some builders filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code.
Now, sales personnel and owners of marine companies are hoping they will be swamped by buyers who have held off in the expectation that the tax will be repealed.
The 10 percent tax applies to the amount of the cost above $100,000, so that a boat selling for $300,000 carries a $20,000 luxury tax. That tax is in addition to any state and local taxes.
Tax the evil rich for the betterment of the whole society mantra is here again.
Please go and read the Law of unintended consequences . This Wikipedia entry is wort reading, especially the examples they have there. It will clear, why when the government enters the free market it brings chaos and misery.
And for the above example the government WRONGLY assumed, that if they raise taxes, there will be a corresponding increase in revenues.
But it failed miserably. The tax was easily avoided by folks who could afford such extravagance by simply buying it from a foreign source, such as in the Bahamas, Mexico, BVI, Caymans, etc. and bringing it into the country as used and therefore tax free.
With folks going outside the country to buy their yachts, many dealers went bankrupt due to lack of business. Maybe it’s hard to feel sorry for the “evil” rich yacht dealer, but their employees went to the unemployment and welfare lines as well.
When is Washington gonna get it? Probabuly never since they don’t understand economics.