When most people think about buying a yacht and placing it in a charter program, they think their boat will be in the BVIs, Caribbean, or even in the Bahamas, and they won’t be able to use their boat very often. However, if you place your boat in a local charter program, for example, here in San Diego, Newport Beach, or Marina del Rey, you can have the tax benefits that go along with owning a boat placed into a charter program, the ability to use your boat whenever you wish, and a nice charter income to offset the costs of owning your boat.
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Purchasing a Boat Owned By an LLC
As you stroll through the docks looking for your dream yacht, you may have noticed many boats listed as “LLC Owned”. What’s the deal with that?
The answer is that by purchasing the LLC that owns the boat rather than making a purchase of the boat itself you can save a significant amount of money by avoiding California’s sales or use tax.
The State of California imposes a sales tax on purchases of personal property, including boats, collected by and through County Tax Assessors. California imposes a sales tax on the purchase of a new boat and a “use” tax on the purchase of a used boat.
A purchase of all or part of a business entity, however, is exempt from such taxation in California and in all other states. The purpose for such an exemption is to encourage economic growth. Wall Street would shut down if sales tax was imposed every time a stock, bond, or LLC membership interest was purchased.
California sales and use tax in San Diego County, effective April 1, 2019, is 7.75%. On a $500,000 boat that equates to a significant tax of $38,750. Thus, buying the membership interest of an LLC with its sole asset of a $500,000 boat saves $38,750 in taxes.
When the business entity is the owner of the boat there is no change in the title or ownership of the company’s asset, in this case, the boat. The only change in ownership is that of the LLC. Since the boat is still owned by the LLC there is no purchase or sale of the boat itself, and as such, no assessment of sales or use tax on the boat.
Keeping the boat in an LLC makes sense for a variety of reasons including liability protection if you put the boat out to charter, use it as an Airbnb, your office, or for commercial endeavors or for other tax deductions depending on its use, not to mention maintaining resale value.
A California LLC pays a minimum $800 payment to the Franchise Tax Board whether or not the LLC makes any profit.
The County of San Diego also assess a boat owner (in this case the LLC) a property tax of approximately 1.1%. Ownership is determined by whoever owns the boat on January 1 of each year.
As with the purchase of any business entity, you should have your attorney prepare a non-binding letter of intent with your proposed terms. You should also conduct a thorough due diligence to ensure the LLC has no liabilities or liens; understand any contracts the LLC has entered into, such as a slip lease, insurance, etc.; and review the LLC’s Operating Agreement and financial account records prior to the purchase.
Once you are have conducted your due diligence and you have agreed upon terms, your attorney should draft a Purchase Agreement for the LLC. Of course, the agreement should be contingent upon purchaser’s acceptance after a sea trial, haul-out, marine and engine survey, and report. Once the LLC is purchased you will need to notify the California Secretary of State of the change in ownership of the LLC and of the any new domestic Statutory Agent for Service of Process. You will also want to open a financial account in the name of the LLC and purchase insurance in the name of the LLC. It is also likely you will need to have the LLC’s Operating Agreement re-written. You may change the name of the LLC as well by filing the name change with the California Secretary of State.
In sum, balance the tax savings against the administrative responsibilities when deciding whether to purchase a boat that is “LLC Owned.” If you are inclined to purchase an LLC which owns a boat as its sole asset, you should consult an attorney familiar with the intricacies involved early in the process.
AGL Yacht Sales, Inc.
Mike Wales is a maritime attorney and co-owner of AGL Yacht Sales, Inc., along with his wife Leilani Wales, a licensed California Yacht Broker. You may contact Mike at mike@aglyachtsales.com or at 480.250.5651.
JEANNEAU IS CELEBRATING ITS 60-YEAR ANNIVERSARY!
Jeanneau is proud to share its history with you.
Created in 1957, the Jeanneau shipyard is born of the creative energy of one man: Henri Jeanneau.
Now, you can discover and relive the nautical passion of Jeanneau through a book created for the special occasion available on https://www.jeanneau.com/60years
With his feet firmly on the ground, he reached for the stars…
New Bali 4.1 Brochure
Check out this new model of Bali 4.1 Catamaran…she is Unique her class! Click here to view Bali 4.1 Catamaran Brochure bali-4.1 brochure
Press Release Immediate Release Cancellation of MTIP’s
Cancellation of Vessel Temporary Import Permits (TIP)
In an effort to help boat owners who wish to cancel a TIP due to changes of ownership, the permit expiration, or any other reason, (for vessel outside of Mexico), Customs authorities will be on hand to cancel Import Permits at the following consulate. Click the link below to view schedules and requirements.
PRESS RELEASE -ASSOCIATION OF MEXICAN MARINAS.docx copy-1
Courtesy of Association of Mexican Marinas
Safety Tips for Fueling by BoatTest.com
Explosions happen most often after fueling
With the boating season in full swing as well as the number of injuries caused by improper fueling, we offer these timely tips on being safe while fueling your boat. If you get in the habit of following these safe fueling procedures, chances are you’ll never come across a problem, and if you do, you’ll discover it before anything happens.