Boat Purchase and Sale – Tax Planning

Most people contact us about boat tax after they receive a letter (or worse, an assessment) from a tax authority looking for payment.  That is a good time to get in touch — but that is not the best time.  The best time to act on boat tax is during the planning stage for the purchase — either before a contract is signed, or at least at the point that an addendum can be used to establish the taxable jurisdiction for the initial purchase, and so that experienced maritime counsel can assess any other issues that might arise.

A good plan for boat tax should always start with being sure that the initial transfer takes place in a favorable location.  This analysis is often complicated by the fact that the owner may live in one state, the seller in another, and boat and broker may be in a yet a third (or fourth) jurisdiction.  So how does one go about answering this question?  The crucial fact to determine is when and where the contract of sale is complete.  For planning purposes, this is also a fact within the control of the buyer and seller.

In most states, laws concerning the sale of goods (including boats) are guided by the Uniform Commercial Code (UCC), which is a model code that seeks to make laws on the sale of goods as uniform as possible in all 50 states.  All fifty states have incorporated at least some parts of the UCC into their commercial code.  While the UCC does not address or control sales tax, in many states it will define the “sale” and that will give a strong indication about where the sale takes place.  In those states which have adopted the UCC’s definition of when a sale occurs, the buyer and seller have several ways in which they can dictate where the sale takes place, and thus where taxes must be paid.

Rule 1: The location called for in the contract controls.

The UCC provides “Title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.”  Md. Code Ann., Com. Law § 2-401.  The most important thing in working out the logistics of anything having to do with a contract for the sale of goods — including where it takes place– is the language of the contract itself.

If the parties specify where and when the sale will take place, that usually determines where the boat is taxable.  Obviously, there are limits to this, one can’t say the transaction takes place on the moon, if the boat and everyone associated with it is in New Jersey.  Simply stating that a contract will be completed somewhere does not automatically make it so.  However, if the seller is in Pennsylvania and the buyer is in Maryland, and the contract states that the sale is to be completed in Pennsylvania upon the seller sending the boat or title documents to the buyer, then the sale took place in Pennsylvania.  Likewise, if the contract says that the sale will be complete upon the buyer receiving the boat or title documents  in Maryland, then the sale will be deemed to have occurred in Maryland.  If the boat is moved to Delaware for the closing, the sale takes place in Delaware.   This rule is the one that can be best used by counsel to assure an orderly result.

Rule 2: If there isn’t an express agreement, the sale happens where the boat is delivered.  


“Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place.” Md. Code Ann., Com. Law § 2-401.

If the contract does not specify where the sale is going to happen, then the location of the sale is generally determined by whether the location where the boat is delivered, nothwithstanding the delivery of title documents elsewhere.  If the seller is responsible for delivery, then the sale occurs wherever the boat is delivered to the buyer.  If the buyer is responsible for delivery, then the sale happens where the boat is transferred to the buyer or to a shipping company at the direction of the buyer.  So, if the boat is built in North Carolina for a buyer located in Maryland, and the buyer goes to North Carolina to get the boat — the sale takes place in North Carolina.  If the contract calls for the dealer to deliver the boat to Maryland, however — the sale probably takes place in Maryland.

Rule 3: If the boat is staying put, the sale happens where the last key paper is delivered.

Unless otherwise explicitly agreed where delivery is to be made without moving the goods, (a) If the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or (b) If the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the time and place of contracting.  Md. Code Ann., Com. Law § 2-401 (West)

If the boat is not being moved as part of the purchase contract, then the sale will happen when the seller gives the buyer the title documents — which generally does not happen until after payment is made (there are exceptions!).  The location is easy to determine if the seller and buyer are in the same location, and the buyer physically hands the seller the title documents.  If the seller is either mailing or electronically transferring the title documents, the law is a bit less clear.  The parties can still stipulate in the contract whether the sale is complete upon sending or receiving of the title documents, and the contract will control the location.  If the parties have not stipulated when the sale is complete, then it is like the sale happens where the buyer receives the contract, but Maryland has not addressed that directly.

It is also noteworthy that a Coast Guard Document (and the Bill of Sale that must be filed to transfer a documented vessel) are not considered to be title documents, at least by most Courts.  This means that a boat that has a state title may be treated differently from a boat that is Coast Guard Documented.

Final Thoughts

For most boats, the State of transfer will be plain the exact timing of the sale will not matter too much.  For a high value boat, however, selecting the State of transfer may be an easy way to avoid or defer a payment that can reach hundreds of thousands of dollars.  To be sure that things are done right, the contract should call for a specific state and for the sale to take place only at a specified moment, and the contract language should reflect the real-world actions of the parties.  If the contract does not specify, then care must be taken to have the boat (or the documents) change hands in the correct jurisdiction.  On a final note — I have never done a formal poll, but I imagine that most boat tax administrators believe that the boat’s location at the time of sale is the most important (or only!) fact concerning taxability.  For this reason, notwithstanding what the law says, I always pay close attention to where the boat is at time of closing.  Good luck, and feel free to shoot us an email if you have a question.