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Do you ever walk down the dock and look at boat transoms? I always look to see the names and if they have any artwork, but I also check to see where they are registered. Years ago, it was always the owner’s hometown or where the boat spent most of its time. If you lived in Manteo, North Carolina, and the boat stayed there, that’s what it would say. But that isn’t always the case these days.
Back in the 1980s, we started seeing more boats registered in Delaware. That’s for several reasons. The most prominent was because Delaware doesn’t have a sales tax. Back then, many states required sales tax ranging from 4 percent to 8 percent. On a $2 million boat, that could add up to $80,000 or more. By registering in Delaware, you would not have to pay that tax. Another advantage of a Delaware registration was the ability to establish an LLC without exposing the owner’s name. This would provide privacy protection and shield the owner from any liability or litigation should an accident occur. This was common practice back in the 1980s and 1990s.
Today, we see fewer boats registered in Delaware because state laws have changed, but we do see more international boat registrations. Every boat must be “flagged” under some country of origin. That boat is then held to the requirements of that country: taxes, liability, worker status, safety and more. On the U.S. East Coast, we primarily see Panama, the Marshall Islands (my favorite) and the Cayman Islands. All these countries have similar benefits. Registration itself is open to many individuals or companies. You do not have to be a citizen of that country. Registration fees vary for each country, but many are tax-advantageous. All provide some type of liability protection, and the fees are relatively low.
However, keep in mind that there are drawbacks with registering boast in these countries. Some U.S. states might try to impose a state tax if your boat spends too much time in a particular state. Insurance is also something you may want to consider, as financing can be difficult if a boat is foreign-registered. Additionally, moving from port to port within the US can be difficult and require significant paperwork. In my opinion, most sport-fishing boats would have little benefit from being foreign-registered.
On July 1, 2010, Florida set a precedent in capping the tax on boat sales at $18,000. Maryland then followed at $15,000, and New Jersey at $20,000. Other states have a significantly lower cap: North Carolina at $1,500, Virginia at $2,000, South Carolina at $500, and yes, Delaware, Montana, New Hampshire, Alaska and Oregon do not have a sales tax. These are sales-tax caps but not personal property taxes, which may also be charged depending on the state, city or county law. The reason for implementing the sales-tax cap was to encourage boat owners to register their boat where it resides. This will lead to tax revenue, keep repairs in the local community, and create jobs. The more boats registered in your state or area, the more revenue they will produce.
If you were to buy a boat today, I would follow these steps or something similar: Establish an LLC in the state where you plan on fishing the most. The LLC entity owns the boat, which provides privacy and mitigates liabilities. Pay the tax required by your state and follow the state’s rules and requirements. This can also help if financing or insurance ever became an issue. Structuring crew, charter vs. private operations, tax write-offs and depreciations are other issues you may want to consider.
So, long story short, there are no shortcuts for sport-fishermen in today’s world. And although there may be exceptions and instances where it can be favorable to get creative with flagging your vessels, the associated amount of time, money and energy required hardly seems worth the hassle.
