Avoiding Maryland Boat Tax

Note: This article is valid as of November, 2014.  Laws change.  If you have a significant issue you should invest time in having an attorney advise you personally on this subject.

Maryland imposes boat tax on the purchase/sale of a boat in Maryland or on the use of a boat in Maryland for period of more than 90 days in a calendar year.  The tax is 5% of the purchase price or fair market value of the boat.  At present, the tax is capped at $15,000 so boats over $300,000 achieve some tax relief, and high value boats can achieve significant savings over an uncapped state.  Tax is required to be paid within 30 days of the date that it becomes due.  If unpaid the tax is subject to interest running at 18% plus an immediate 10% penalty.  The penalty can rise to 100% if the tax authorities believe that tax was unpaid due to fraud or gross negligence.

For high value boats that anticipate spending a significant part of the year in Maryland, it is generally advisable to pay the tax.  For boats that will spend all or most of their time in Maryland, it is also generally advisable to pay the tax.  If a boat is not in that category, there are many scenarios in which tax can be deferred to a later date or avoided altogether.

1. A boat purchased in state, but leaving for another location.  Such boats can file a Maryland B110 form with the Maryland Department of Natural Resources, and so long as the boat leaves the state in short order is principally used in another state, no tax is owed to Maryland.  If the destination is international or no or  low-tax state (Delaware, Virginia, Rhode Island, for example) then no tax will be due at purchase and no tax will later be due for the use.

2. A boat that is purchased elsewhere and is in Maryland less than 90 days.  Such boats would not pay sales tax to Maryland, and would not be principally used here because they in the state for too short a time.  No tax would be due.

3. Boats that paid at least $15,000 in sales tax to another state.  The payment to the other state would be a credit against anything owed to Maryland, so no tax would be due.  If it is in the state for more than 90 days, and is not expected to return to its home state for the majority of the year, it should register in Maryland.  No tax should be due.

4. International and interstate commercial boats.  Boats that are in the US under a valid customs sticker and boats that are in interstate commerce have always been excepted from tax in Maryland.  In this author’s view, that is something that could potentially be changed by policy, but it has been the case for at least the last decade.

5. Other exemptions: there are other potential exemptions including boats that are out of the water and in readiness for use; boats that are listed for sale with a dealer and not being personally used; and boats that are held for maintenance and repair.  These may still apply even if a boat spends a significant amount of time in Maryland, but they can be factually difficult to prove.  Consult counsel.

Boat tax avoidance myths:

1. A boat owned by a Delaware LLC does not owe tax.  This is a myth — if its in principal use in Maryland (or any other use state) its taxable notwithstanding the location of the corporation that owns it.

2. Federally documented boats do not owe tax.  This is a myth.  Federally documented boats are exempt from titling in a state, but may still be required to register and pay tax.

3. Transient boats do not owe tax.  This is usually true.  But if the owner gets laid up or distracted and the boat stops in a state — it is likely to become taxable in that state.

J. Dirk Schwenk is graduate, cum laude, of the University of Maryland School of Law.  He practices in real estate, civil litigation and issues surrounding boats, marinas and waterfront property.  



For additional information and articles regarding our boat tax practice, please visit our website: www.boattax.com