By Tom Andrews, CPA
While we regularly focus on federal income taxes it is important to keep in mind that SALT (state and local taxes) may have just as much of an impact on yacht crew as do the federal taxes. In my experience the state and local taxing authorities can have more aggressive enforcement policies than the IRS. To further complicate matters, many yacht crew are unaware as to whether or not they have a state and local income tax exposure. For the purposes of this column we will be referring to Florida sales and use tax. Each sale, admission charge, storage, or rental is taxable unless the transaction is deemed exempt under the Florida administrative code. Use tax is due on the consumption of taxable goods and services.
While most yacht crew may never incur sales and use tax liability it is something that crew should be aware of in case they decide to start a small business. It is also important for crew and owners to be aware of in the event that a crewmember is put in charge of a refit or management of the yacht. Whenever you work with vendors and suppliers you need to be aware of the sales and use tax implications. Over the years we have had many clients that have started side businesses. These businesses sometime include but are not limited to the following transactions/activities:
- Selling supplies to yachts
- Renting out mopeds to crew
- Short term crew housing rentals
- Selling uniforms
The reason SALT taxes can be so dangerous is that these transactions often start out as small hobby type activities that are used to supplement the crewmembers income. If the venture goes well the crewmember might pursue the business full time and by then any potential noncompliance may return to haunt the tax payer. In many cases audits are triggered because a client or supplier of the tax payer was audited by the state. An auditor might examine someone else’s file and happen to see one of your invoices that do not include a line item for sales and use tax.
There are many half-truths regarding the application of sales and use tax in the yachting industry. The most common myth is that foreign flagged vessels are not required to pay sales tax on repairs and supplies, while this may be true in some circumstances a care review of the scenario is always advisable.
Generally speaking sales and use is taxed at 6% and there are numerous transactions that are considered exempt and some of these transactions are specific to the yachting industry. If you are ever concerned as to whether you may have a sales and use tax liability I recommend you visit the State of Florida website at myflorida.com or consult with an accountant.