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Fri April 8, 2011
Changes Proposed For Connecticut's Marine Tax Laws
Connecticut’s marine industry is one of many facing tax increases in governor Malloy’s proposed budget. But those in the industry say the changes could have unintended consequences.
Early April is a quiet time for boating here in Connecticut. Most pleasure boats are still tucked under winter covers, but for Connecticut boatyards this is just as important a time of year as any other.
At pilot’s point marina in Westbrook, Rives Potts is inspecting a 46 foot sailboat that his yard has been rebuilding in one of their sheds.
Rives Potts: We’re doing welding, painting, engine work rigging work electrical work body work there’s a lot of different work going on on the boat.
There’s been enough work going on to keep four to five full time workers busy all winter. The end cost for the job will be in the six figures, and current tax exemptions in Connecticut make it beneficial for owners to spend even large amounts like this locally, instead of simply buying a new boat.
Rives Potts- Buying a new boat like this would cost about a half million dollars or so and he’d have to pay 6 percent on it, and yet he can fix it up right now, there’s no tax on labor so he doesn’t have to pay tax on that. But he is paying tax on materials and he’s restoring something that should be restored.
Thirty miles east along the coast at Mystic Shipyard, owner Jeff Marshall shows me a large shed at the back of the lot.
Jeff Marshall- Lets take a look in here. This shed is absolutely packed. You can see rail to rail and it’s a chess game to get the boats in here. Because of the demand this is great… with the indoor storage we’re able to keep crews going year round. Lets go take a look at the rigging shop.
Like labor, winter storage for boats is currently tax exempt in Connecticut. That combination has helped Marshall grow the shipyard he bought 12 years ago, and he currently employs 18 workers year round.
But these exemptions are on the chopping block in Malloy’s proposed budget. So is an exemption on the trade in value of an old boat, and there are proposed increases to the 6% marine sales tax- including an additional 3% luxury tax on boats over one hundred thousand dollars.
To those in the industry, some of this sounds frighteningly familiar. In 1990, the federal government experimented with a 10 percent luxury tax on boat sales.
Jeff Marshall- They thought it was going to bring in revenue. But it didn’t. Jobs were lost, dealers went out of business, manufacturers went out of business. Revenue was down, it was proven.
The tax was repealed in 1993, but not before twenty three thousand jobs were lost nationwide. In response, Rhode Island took the step of exempting all boat sales, labor, and storage from taxes in hopes of restarting growth, and:
Rives Potts- Their business flourished
That’s Rives Potts again.
Rives Potts- Connecticut, on the other hand, loaded up the taxes on just about everything you could think of and it hurt our business and it took about 4 or so years to get some of those taxes exempted ... That happened in the late 90’s and that’s helped somewhat.
Connecticutmarine businesses that survived saw a quick increase in service and storage business after the exemptions went into effect, and were able to sustain that through the last decade. But the industry never rebounded to its peak size. Pilot’s Point, for example, currently employs 53 full time workers, down from 104 in the early nineties. State wide, the industry is down from a steady 12,000 workers to about 4,500. The latest recession has hit the industry hard, and companies all across the state have relied upon the tax exemptions to hold on to clients.
If the exemptions are eliminated, Rives Potts says this will not be an issue for millionaire yacht owners.
Rives Potts- Out of the hundred 5 thousand boats in CT roughly 80% are less than 26 feet long, so the majority of boats are owned by hard working folks just like you and me, whether they’re teachers plumbers, carpenters run a service station, whatever it happens to be.
And if those boat owners have a fixed amount of income to devote to their boating hobby, an extra $2-300 in taxes per month could be enough to make them leave the boat in the back yard instead of using it.
Rives Potts- you know the very wealthy guy who can afford to pay $20,000 in taxes will not be hurt because he will take his boat somewhere else.
And Rhode Island is happy to be that somewhere else. Already more than 50% of registered boats have out of state owners. For a Hartford area boat owner, the difference in drive time between mystic and Rhode Island is about 5 minutes. Dean Bingaman manages Norwest marine in Pawcatuck, and his closest competitor in Rhode Island is just a couple hundred feet across the river, and tax-free.
Dean Bingaman- We’ve already started with deleting some positions here and being more profitable out of fewer people but it’s very difficult and you leave yourself holes in the long run. I’d like to see folks PLANNING where we’re going with these taxes and I know that we need to make up these deficits, but I don’t think willy-nilly is the best way. And I’m not necessarily saying this is willy-nilly but we’re not getting a lot of reasons for why.
It’s not surprising he’d like reasons. The reach of boaters in Connecticut’s economy extends beyond boat yards and marinas, to downtown shops, grocery stores, restaurants, and many other community businesses. If boaters choose to leave the state, the loss of tax revenue would be just part of the impact.