I often receive calls from clients confused as to the applicability of county property taxes on vessels. Confusion occurs over the tax period, due dates, differing tax rates by city and county, etc. Please allow this post to answer the most common questions I receive.
What is this Unsecured Property Tax Bill I Just Received?
Each County Assessor imposes an “unsecured” property tax of approximately 1.1%, depending on taxing jurisdiction, on all vessels in California. Vessels are valued at their fair market value each and every year as of the January 1 lien date. The tax is due for the upcoming fiscal year. Each County’s fiscal tax year begins July 1 and runs through June 30 of the following year. The owner of the vessel as of January 1 is the responsible party for the tax for the entire upcoming fiscal year.
An unsecured property tax is an ad-valorem (value based) property tax that is the liability of the person or entity assessed for the tax for the entire upcoming fiscal year. Because the tax is not secured by real property, such as land, the tax is called “unsecured.”
Only boats owned and held in inventory for sale by a licensed dealer are exempt from property taxes.
How Does The County Know I Own a Boat?
The County Tax Assessor receives boat registration and documentation information from the Department of Motor Vehicles, the U. S. Coast Guard, and marinas operating within the county. They also perform annual on-site inspections of all marinas and moorings in the county.
How is the Tax Jurisdiction Determined?
Revenue and Taxation Code Section 1141 provides that “boats shall be assessed where they are habitually moored when not in use.” Domicile (residence) of the boat/vessel owner is the usual tax situs (location), regardless of where the vessel is registered. However, proof that the boat/vessel is habitually moored or located elsewhere when not in use overrides that presumption.
A documented vessel is assessed at the “place of documentation” unless it is kept elsewhere, and notice of this fact has been sent to the Assessor of the county in which it is documented. Temporary absences in Mexico, or elsewhere, of a few months’ duration would not affect the situs of the vessel.
When and How Does the County Determine the Taxable Value of My Boat?
The initial taxable value of a vessel is determined from marine market value guides and information provided by the taxpayer on the Vessel Property Statement (BOE-576-D). Adjustments for actual condition are made, as appropriate. Vessel values for subsequent years are generally derived using depreciation rates calculated from marine market value guides. Vessels subject to low value resolutions, enacted by some counties, are not assessed. Check with your county assessor. For example, a boat worth less than $3,000 will not be taxed in Orange County.
Damage (beyond normal wear and tear) to a boat/vessel must be documented in order to receive consideration for value adjustment. You may appeal the valuation.
If requested by the Assessor’s Office, or if the value of your vessel is $100,000 or more, you are required to file a Vessel Property Statement. If a statement is not returned, an estimated assessment will be made using the best information available, and a 10% penalty on the assessed value will be added for failure to file as mandated by the California Revenue and Taxation Code Section 46.
When is the Tax Due?
Liability for vessel property taxes attaches to its owner as of 12:01 a.m. on January 1 each year (the lien date). The bill for the coming tax year is then issued to the owner of record at that time, and that individual is liable for the taxes even if the boat was sold soon after that date. In most counties, the tax payment is due in early June. If the tax is not paid by August 31, it becomes delinquent.
What Happens if I do Not Pay the Property Tax?
If you do not pay the unsecured property tax bill by its delinquent date of August 31, you will be charged a 10% penalty. You will be charged an additional 1.5% penalty per month (18% penalty annually) beginning two months after the 10% penalty.
The County Assessor can collect unsecured taxes by placing a lien on the title to a property, the registration or license; recording a tax lien; taking legal action; getting summary judgment; or seizing and selling your vessel. In addition to collecting taxes and penalties, the County Treasurer-Tax Collector may collect actual costs of collection incurred by the County up to the time the delinquency is paid.
Pursuant to California law, the Department of Motor Vehicles shall not renew, or transfer title to or interest in (registered or legal owner) a vessel, if notified by a county tax collector that the taxes for a vessel are delinquent. A stop is placed on the vessel registration record to prevent renewal when the taxes are delinquent.
Can I Pro-Rate the Property Tax if I Sell the Vessel?
The County Assessor will not pro-rate a tax liability. It is up to the buyer and seller to negotiate the pro-rated amount in the purchase contract if they choose to do so. The most commonly accepted method is to pro-rate by calendar year. Remember a County’s fiscal tax year begins July 1 and that the owner of the vessel as of January 1, 2021 is the responsible party for the tax for the entire upcoming fiscal year. If the vessel is sold in 2021, the owner of the vessel as of January 1, 2022 is responsible for payment of the tax for the upcoming 2022 Fiscal Year.
Pro-rata can occur either by using the calendar year or by using the fiscal year. Despite the fact that the tax is paid in advance, we recommend using the calendar year method as most people will use a calendar year for their tax returns.
Assume a 1.1% property tax on a $100,000 boat which sold and closed on September 30 and pro-rated by calendar year. The Property tax is $1,100.00.
| Seller’s Pro-Rata share (9 mos. of calendar year) | Purchaser’s Pro-Rata share (3 mos. of calendar year) |
| $825 | $275 |
Now assume a 1.1% property tax on a $100,000 boat sold on September 30 and pro-rated by fiscal year beginning July 1. The Property tax was $1,100.00.
| Seller’s Pro-Rata share (3 mos. of fiscal year) | Purchaser ‘s Pro-Rata share (9 mos. of fiscal year) |
| $275 | $825 |
While either method can be agreed upon, the calendar year method is the most widely accepted method and probably the fairest method considering the seller can take the portion of property taxes paid as a tax deduction.
If you have any questions about property tax and valuation appeals, use tax and exemptions, or franchise taxes, please fee free to give me a call.
