Luxury Yachts Steer Clear Of Washington State Taxes

Oct 11, 2013

A 440-foot superyacht named Serene is approaching a deadline date with Washington’s tax authorities.

If it cruises through that deadline by staying longer than 60 days, its owners will have to pay 10 percent of the yacht’s value, which is $30 million. 

State rules allow corporate-owned vessels to stay for 60 days in a 12-month period. If they stay longer they are taxed as though the yacht was purchased in Washington state, 10 percent of its value.

That’s why Serene is widely expected to do what other yachts of its size do when this occurs: Leave to avoid paying. Serene has been at Pier 90 in Interbay in Seattle since mid-August. The boat flies a Cayman Islands flag and has its own submarine. Observers walking by the ship have watched over the weeks as work was carried out onboard.

That work – as well as materials, provisions and fuel – generates sales tax revenue for Washington. That’s why opponents of the 60-day rule say that if Washington relaxed its regulations, more yachts would make their way here, therefore increasing sales tax revenue.

The yacht is reportedly registered to a Russian vodka magnate, but the state cannot prove that ownership, because corporate registration obscures who owns the yacht. KUOW was unable to determine whether that ownership remains current, as ownership registry is offline due to the partial federal government shutdown.

For now, the state wants people living in the state with boats at Washington docks to pay their taxes with no loopholes.

"That is a concern for the agency and the state of Washington in terms of fairness to the rest of Washington boat owners who do in fact pay either use or sales tax," said Kim Schmanke, who speaks for the state Department of Revenue.  "And when someone is able to hide the true ownership of the vessel, particularly a large vessel, then that’s unfair to the rest of Washington taxpayers who are in fact abiding by the laws."

Bob McConnell owns a yacht at Elliott Bay and pays residency taxes. The lost opportunity for Washington workers concerns him.

If I ruled the world, we would have a system that would allow that large one, and smaller ones, to come to Seattle and stay in Seattle long enough to do repairs, upgrades and so on as opposed to just leaving. There are workers up here who could use a good quality, living-wage job; and boats like that bring them to Seattle.

McConnell wants the yachts to stay longer before risking the tax and having to leave. One proposal argues yachts should be able to stay for six months instead of the current two months.

This is not the only option for increasing revenue from these boats. Florida taxes every yacht, but caps the tax at $18,000, which means the bigger the boat, the better the deal. Florida assumed it would lose money on the tax cap, but so many yachts registered in Florida that the state gained tax revenues. Maryland is trying this now too.

Dwight Jones, who manages the Elliott Bay Marina, said the state should try to find out if changing the tax rules would bring in more out of state yachts and increase tax revenue. 

It just seems to me that you don’t really know what the effect is of changing the law until we do it – until we actually give it a shot, dip a toe in the water and see. Can we really attract all these boats here? We won’t really know.