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Set up an LLC to buy a boat?

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    Set up an LLC to buy a boat?

    So I've been shopping off and on for a new boat. And yes, I really don't like the fact that I will have to pay full sales tax on the full purchase price just like the last guy did, and the guy before him and so on:

    I have seen where some set up limited liability corporations (LLCs) to own their boat. That is set up as a separate entity with the boat as its sole asset. So when they they are ready to sell the boat, they sell their LLC which means that the boat doesn't change hands. It remains the property of the LLC. There is little tax due on the sale of an LLC versus the sale of a boat where sales tax would again be owed.

    Sounds good to me. I wouldn't escape paying sales tax when I buy the boat for the LLC but I figure whoever buys the LLC from me when I sell would pay more assuming he can legally avoid paying sales tax.

    I'm sure that some will say that would be cheating the government out of tax revenue but if this legal, I am not cheating, it is a legal tax avoidance measure.

    Appreciate opinions from anyone legally versed in this.

    1998 3587 Bayliner, Port Orchard, WA

    #2
    I am no legal expert....but have the same understanding that you have about how it works. Not sure you will actually get more money when you sell? It requires annual tax returns. My accountant charges $500 each year and in CA there is an annual minimum tax of $850. It might actually deter some buyers?
    2001 Bayliner 4788, Cummins 370's
    Zodiac Yachtline 380, Yamaha 25hp
    Sanger wakeboard boat
    volunteer CA Delta tour guide

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      #3
      Oakland4788: Good question, so lets assume that two boats are virtually equal here in Washington State. Let's say both are 4788s worth $250K. One is sold through an LLC and the other is not: The LLC boat would not trigger sales tax at 9% or so. That amounts to about a $22,000 savings for the LLC boat since sales tax would not be owed. I know which one I would buy and also be willing to pay more for.
      1998 3587 Bayliner, Port Orchard, WA

      Comment


        #4
        Everything you're talking about is legal so nobody is being cheated. If the numbers work out, taking into account what it takes to set up and support an LLC, I say it's a great idea. As someone else pointed out, when selling the boat, it makes it a very attractive deal vs. a non LLC boat. I have a very savvy friend, who is a business owner and a boat owner, and he set up an LLC that owns his boat for the reasons you pointed out.
        Alex
        Orange County, Ca.
        2001 3988
        Twin Cummins 330's

        Comment


          #5
          What matters is where you intend to moor your boat. Many states will successfully collect the sales tax no matter what you try. So, weigh the costs of forming the LLC, and the risk of getting caught. Keep in mind that the entities in charge of collecting taxes are not stupid.

          The paper on your boat may be a Coast Guard registration but states have caught on to that hustle.

          Comment


            #6
            Washington State doesn’t have income tax so they have to get money somewhere to support all the socialist programs and subsidies. The 47 percenters that don't work.
            I believe (correct me if I’m wrong) that even if the boat is under an LLC there is an annual excise tax levied with the state registry. The boat must be registered in the state even if it’s documented and operating on federal waters. I don't know how it works for transferring ownership of an LLC as the owner of the boat would remain the same. But I'm sure they will get your money one way or another. My S corp only costs me about $300 a year.

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              #7
              Sounds like two yes's and two maybes so far. Thanks for the input. In response to the question about Washington states annual registration tax, I expect that will still be owed and that is about one half of one percent of the boat's value each year. And my new LLC would still owe the sales tax when it bought the boat. The relief from sales tax would be to subsequent purchasers of the LLC that owns the boat.

              Makes me wonder about boat brokers when I go to sell the LLC that owns the boat. I'm not sure that they are licensed to sell an LLC that owns a boat. Maybe I would need a real estate broker or sell it myself as the owner of the LLC. Looks like I would need some legal advise and there's another expense. I also checked and it looks like there is a $250-$300 annual fee in Washington state to maintain the LLC. More costs and time to set it all up. Is it worth it?
              1998 3587 Bayliner, Port Orchard, WA

              Comment


                #8
                Originally posted by Pacrimrat View Post
                Washington State doesn’t have income tax so they have to get money somewhere to support all the socialist programs and subsidies. The 47 percenters that don't work.
                I believe (correct me if I’m wrong) that even if the boat is under an LLC there is an annual excise tax levied with the state registry. The boat must be registered in the state even if it’s documented and operating on federal waters. I don't know how it works for transferring ownership of an LLC as the owner of the boat would remain the same. But I'm sure they will get your money one way or another. My S corp only costs me about $300 a year.
                This is not the political forum.

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                • Average_Joe
                  Average_Joe commented
                  Editing a comment
                  Not sure what is political... Seemed like a simple statement about the sources and uses of tax revenue.

                #9
                Originally posted by baylineguy View Post
                Sounds like two yes's and two maybes so far. Thanks for the input. In response to the question about Washington states annual registration tax, I expect that will still be owed and that is about one half of one percent of the boat's value each year. And my new LLC would still owe the sales tax when it bought the boat. The relief from sales tax would be to subsequent purchasers of the LLC that owns the boat.

                Makes me wonder about boat brokers when I go to sell the LLC that owns the boat. I'm not sure that they are licensed to sell an LLC that owns a boat. Maybe I would need a real estate broker or sell it myself as the owner of the LLC. Looks like I would need some legal advise and there's another expense. I also checked and it looks like there is a $250-$300 annual fee in Washington state to maintain the LLC. More costs and time to set it all up. Is it worth it?
                Meh. Have to run the numbers and you will certainly have to pay the annual registration. Boats and RV's people do try all sorts of ways to dodge the tax man.

                Comment


                  #10
                  Setting up an out of state LLC (say Oregon or Montana) to avoid sales tax is definitely a problem when the state of Washington catches up with you. I'm talking about setting up a
                  wWashington state LLC though.
                  1998 3587 Bayliner, Port Orchard, WA

                  Comment


                    #11
                    My situation was different. I bought my boat with my marketing company, imported it into Canada under NAFTA tax free and used it as a sales office for Dockominium sales here in Canada. As the Canada shipping Act requires a watchman I was allowed to live aboard as well. This was ten years ago and the boat has been depreciated annually to well below it's current market value, which creates a tax saving against company income. When I close out the company in three more years I can dividend the boat to myself personally at the depreciated value and, as it is an arms length transaction to a shareholder there will be no sales tax as well. In the final year a lot of money will also be spent on refurbishing anything deemed to need refurbishing. I was audited once in the last ten years and passed nicely as I am still involved with waterfront developments. Your results may vary.as I was legitimately using it for business.
                    "Adios Dinero"
                    1997 3988 with new 330 Cummins
                    Photo Credit: Whiskywizard

                    Comment


                      #12
                      Unless you have a legitimate business reason to buy/sell in a corp or LLC, there is not much of a savings, either financial or legal in doing so.

                      Your corp or LLC will pay sales tax upon acquisition. Most boat transactions involve buying the boat from the LLC versus buying the LLC. It is normal to close the books on an old LLC when ownership transfers.

                      With a corp or LLC, you will have annual tax returns that must be filed, both state and federal, business licenses that may need to be purchased and renewed, etc. Your sales tax advantage disappears quickly if you hang on to that boat and LLC for any length of time.

                      The only legitimate reason there is to have your boat in an LLC is if you have a business activity with the boat such as chartering or renting it out or if you have an existing business where you plan to use the boat as an asset designed to further your business interests.

                      In my case, I have an existing corporation that is in business for the purpose of transacting vehicle sales. My boat and trailer were acquired by the corporation and have been owned by the corporation since day one. I have never paid sales tax on the purchase because vehicle purchases are tax exempt, but when I sell it, I will have to collect sales tax from the new buyer. There are some other advantages ... I do get to deduct some expenses, such as maintenance and insurance against normal business revenues, which is a plus, but it is a small boat and the annual deduction is trivial...several thousand dollars which is small potatoes on the balance sheet. I can deduct fuel if I am entertaining company employees or business associates on the boat which does happen. And I don't have to pay annual registration on the trailer either. I just put a dealer plate on it and away we go. I also take the opportunity to depreciate the asset on the books as I would any other ordinary asset. In other words, I take the loss gradually over time versus one lump sum at the end. So for me, it works out because there is a genuine business activity in place already that pays all the customary business expenses with or without the boat. But to form a business entity strictly for the purpose of holding a boat...ehh, the economics become rapidly unfavorable.

                      Bottom line is if it is a business, then run it like a business. If it is a personal pleasurecraft, then pay the tax man and go boating.
                      Mocoondo
                      2002 Bayliner 195 Capri
                      Mercruiser 5.0L V8 / Alpha I Gen II
                      MMSI: 338091755

                      Comment


                        #13
                        Another thing to remember, is if you are going to try to sell the LLC any knowledgable purchaser will need to conduct an extra level of due diligence on the LLC to ensure they are not purchasing a bunch of debt or other potential problems. Having just purchased a boat over the summer, and having considered at least one LLC owned boat–it did not end up looking like much of an advantage to purchase the LLC.

                        Just one data point (full disclosure – I am an attorney, so overly concerned about the legality and potential liabilities involved in purchasing an LLC thats sole purpose is ownership of a recreational yacht).

                        Cheers...
                        GMS
                        2008 Meridian 490
                        2010 ArrowCat Express 30 (sold)

                        Comment


                          #14
                          Originally posted by Mocoondo View Post
                          Unless you have a legitimate business reason to buy/sell in a corp or LLC, there is not much of a savings, either financial or legal in doing so.

                          Your corp or LLC will pay sales tax upon acquisition. Most boat transactions involve buying the boat from the LLC versus buying the LLC. It is normal to close the books on an old LLC when ownership transfers.

                          With a corp or LLC, you will have annual tax returns that must be filed, both state and federal, business licenses that may need to be purchased and renewed, etc. Your sales tax advantage disappears quickly if you hang on to that boat and LLC for any length of time.

                          The only legitimate reason there is to have your boat in an LLC is if you have a business activity with the boat such as chartering or renting it out or if you have an existing business where you plan to use the boat as an asset designed to further your business interests.

                          In my case, I have an existing corporation that is in business for the purpose of transacting vehicle sales. My boat and trailer were acquired by the corporation and have been owned by the corporation since day one. I have never paid sales tax on the purchase because vehicle purchases are tax exempt, but when I sell it, I will have to collect sales tax from the new buyer. There are some other advantages ... I do get to deduct some expenses, such as maintenance and insurance against normal business revenues, which is a plus, but it is a small boat and the annual deduction is trivial...several thousand dollars which is small potatoes on the balance sheet. I can deduct fuel if I am entertaining company employees or business associates on the boat which does happen. And I don't have to pay annual registration on the trailer either. I just put a dealer plate on it and away we go. I also take the opportunity to depreciate the asset on the books as I would any other ordinary asset. In other words, I take the loss gradually over time versus one lump sum at the end. So for me, it works out because there is a genuine business activity in place already that pays all the customary business expenses with or without the boat. But to form a business entity strictly for the purpose of holding a boat...ehh, the economics become rapidly unfavorable.

                          Bottom line is if it is a business, then run it like a business. If it is a personal pleasurecraft, then pay the tax man and go boating.
                          I was in the business of buying and selling aircraft. And I did not pay sales tax on airplanes bought to resell. But I definitely was supposed to pay sales tax on an airplane bought for my use or the company's use. It sounds to me that your boat falls in this later category.
                          1999 3788, Cummins 270 "Freedom"
                          2013 Boston Whaler 130 SS
                          Anacortes, WA

                          Comment


                            #15
                            We all pay taxes in some form or another to run the country-state and local.
                            Some states have higher taxes on some items than others, I do not agree on this.
                            That being said, very few can avoid it. Somewhere down the line/time someone will pay it.
                            Taxes and death, hard to cheat it!
                            Pat says: DO-IT-RIGHT THE FIRST TIME!

                            Bayliner 3870 "ALASKA33)
                            Twin 350 GM power
                            Located in Seward, AK
                            Retired marine surveyor

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