Yacht registration is an important consideration for a yacht buyer. Most yacht owners need to consider the sales and use tax implications. The scope of this article provides information for US citizens and residents. It is important to note that there are different ways to title and to get proper yacht registration.
USCG yacht documentation acts a title and form of yacht registration
Many yacht owners choose to document their new yacht as a yacht registration and title. This is done through the United States Coast Guard and acts as a title. The majority of lending institutions will insist on this form of titling, as it allows them to ‘perfect’ the lien on the yacht by giving them a way to repossess the yacht in the event of a default. Having a yacht registration as a ‘documented’ vessel also provides more internationally recognized value for the ‘flag state’ of the yacht. In other words, in the event of an issue in a foreign country when using the boat abroad, there is more recourse for the US government to step in when the boat is documented. Essentially the US yacht registration becomes a ‘little piece’ of the US. A documented vessel can claim a home port of anywhere in the US. Upon sale, the ownership is transferred by bills of sale (in USCG form) and the Coast Guard makes changes on the original yacht registration.
Yacht buyers who intend to finance the yacht are often required to have a US documentation yacht registration.
Special note should be made that in order to US document a vessel, the owner (or principal in the event that the boat is held under a corporation or similar) must be a US citizen. This form of ownership is more common with yachts and boats over 40’ in length.
Some US States allow yacht owners to title the yacht directly
Some owners simply prefer to obtain a yacht registration with state title . In Florida, this is common and quite easy. However, liens (including hidden liens) can be difficult to track and may be unenforceable. When it is time to sell, a bill of sale is generated and the original title is signed over by the seller. This title be taken to a Tag agency for processing. This form of ownership is more common with yachts and boats under 40’ in length when not involved with a major lender and for foreign (non-US) owners.
Yacht Registration must be linked with the State of domicile
Regardless of how the vessel is titled, the yacht must be registered in a state for usage. The majority of states enforce the owner to pay a sales or use tax. Many owners plan to keep their yachts in areas where they intend to use it. Thus an owner who is a resident Virginia may keep the vessel in Florida, provided the owner pays a use tax (which is one time only). Most states impose a period of time which a vessel can stay in their waters before becoming subject to a use tax. This tax is often the same as sales tax and can vary between nothing to 8% of the value.
Some states, such as South Carolina, impose an annual tangible property tax (which varies by county) for residents – while still maintaining a limit for how long the vessel can stay in state waters before becoming subject to use tax.
Typically, a sales tax is enforced when a vessel is sold within a particular state and can double as the use tax.
However most states allow a sales tax exemption when the buyer is from another state provided the vessel is removed in a timely manner from state waters with proof of removal AND registration in another state.
While sales and/or use tax is only paid once by an owner in most states, a nominal registration fee (similar to an auto registration) is collected yearly with a decal provided which must be displayed on the vessel.
Yacht buyers should note that these taxes and regulations vary from state to state and that some states enforce their policies quite aggressively with severe penalties. Many states recognize that residents move their boats around to avoid paying tax and often challenge the owner if the vessel is in the resident’s home state waters. For instance, some resident yacht owners in Maryland (which has a 6% excise tax and a 90 day visiting period) will register their vessel in Delaware (which has no sales tax), but must move their boat out of Maryland waters every 90 days for a certain period of time before returning.
The state of Florida is a favorite cruising ground for many boaters by virtue of the weather, destinations and boating support. Florida offers a sales/use tax limited to 6% of the first $300,000 of boat value. Thus a million dollar yacht will only be subject to a sales/use tax of $18,000 (as opposed to 6% of the total value). Florida also offers an attractive time period for staying in Florida waters upon sale (90 days plus an additional 90 days by purchasing a decal). If a boat is purchased in Florida a non-resident can remove the yacht from state waters (and register in another state), stay out of Florida waters for 6 months – and can then return and stay in Florida as long as they wish. See this PDF from the Florida Department of Revenue for more information.
When considering the purchase of a yacht or boat, the title and yacht registration should be considered carefully in advance. To check state regulations, it is quite easy to do a search on the internet for different state regulations.
When considering documenting a yacht (for example: USCG documentation), it is advisable to engage a specialized documentation company who will check the lien status (via an abstract), provide bills of sale, perfect the documentation with the USCG and clear up any liens accordingly.
There is a difference between state taxation and US federal rules for yacht registration. Foreign registered (or owned) yachts are subject to carrying a valid cruising permit and which allows the vessel to move between most state waters with no sales/use tax applicable. It is highly advisable to investigate the individual state policies.
Many buyers form a limited liability company or corporation to hold the yacht as a single entity asset. The advantage to this is for added liability, identity and asset protection which may be advantageous. Legal help should be sought in this case.
A yacht broker can provide valuable assistance for the buyer to help determine how to title the vessel and yacht registration. It is also possible to recapture earlier sales tax paid when a buyer has a boat for sale and is buying a new one by taking the vessel in as a trade and deducting the value of the trade-in yacht against the value of the newly purchased yacht – with sales tax being applied to the difference. While Florida allows this practice, other states may not.
Also see this related post: Yacht Registration: International.