A tailwind for yachts as homeowners wait

Lawmaker defends bill capping sales tax on big boats, saying it would create 600 jobs

Homeowners are not expecting much of a tax break from the Texas Legislature this year, but millionaire yacht owners are on the brink of getting a major one.

The Texas Senate has approved legislation that would cap the amount of sales tax on boats as long as 115 feet at $18,750. For the buyer of a $3 million yacht, that tax break would be worth almost $228,000.

State Sen. Larry Taylor, RFriendswood, doesn’t deny big yacht owners will benefit, but that is not the point.

“People who buy big boats are buying them in other states,” Taylor said.

He said boat sales have plunged in Texas, which has lost its share of the market because other states, such as Florida, are offering tax breaks for yacht sales.

Taylor said his bill is more of a jobs bill because it could create up to 600 jobs in Texas. He said once boats are bought in Texas, the buyers will also buy fuel here, as well as equipment and repairs — all services that are going to other states right now.

Texas is way behind Florida in cutting boat taxes. In 2010, Florida capped sales taxes for yachts at $18,000. Alabama also caps sales taxes for boats, but at $37,500. Some states, including Delaware and Rhode Island, have no sales taxes on boats over $1 million, according to the Texas Marine Industry Coalition, which is advocating for the changes.

But data shows large boat registrations in Texas have remained largely steady over the past two decades. There are currently 3,597 non-commercial boats between 40 feet long and 115 feet registered in the state, according to data from the parks and wildlife department. Of those, 1,641 were registered from 1999 to the end of 2008, and 1,532 registered from 2009 to the end of last year. That includes a large spike in registrations in 2004, and the national recession in 2009. It doesn’t include boats that were registered previously and no longer in Texas.

The figures also don’t account for yachts Texans may have bought and then docked in other states, where the tax breaks are available, said John Preston, president of the Texas Marine Industry Coalition, which backs the bill. Texas gets zero tax revenue in those instances, he said.

“The sales tax cap gives them plenty of money to travel from Texas to Florida and keep their boats in marinas there,” he said. “This sales cap jobs bill will allow Texas to get the first bite of the apple, and continue to get tax revenue when products and services are purchased over the lifetime of the boat in Texas waters.”

Currently, boats in Texas are subject to a 6.25 percent state sales tax plus local sales taxes which could be up to another 2 percent. An 8.25 percent, sales tax on a $3 million purchase amounts to $247,500 in sales taxes. Under Taylor’s bill, it would drop to $18,750.

Budget analysts say the tax break would cost Texas $2.3 million in revenue over the next two years.

“It’s not the biggest tax break, but it benefits a very small number of very wealthy people and the folks that sell things to them,” said Dick Lavine, a senior tax analyst with the Center for Public Policy Priorities, an independent research group based in Austin. “It’s another unnecessary loss of revenue.”

The Senate voted 25-6 for the bill. It now goes back to the House for another vote. It already passed the House once earlier this month on a 113-19 vote, but the Senate version of that bill was slightly different so it now returns to the House for another vote. If it passes again unchanged, it would go to Gov. Greg Abbott who would then have the authority to decide if it becomes law or not.