Tax Type
Retail Sales and Use Tax
Watercraft Sales and Use Tax
Description
USCG titling; When to pay tax
Topic
Property Subject to Tax
Returns and Payments
Date Issued
10-27-2000
October 27, 2000
Re: Request for Ruling: Watercraft Sales and Use Tax
Dear ****
This is in response to your letter of September 29, 2000, and previous correspondence regarding the Virginia Watercraft Sales and Use Tax.
***** (the "Taxpayer") represents clients in brokerage sales and purchases of larger yachts. The nature of your inquiry centers on determining whether a vessel is subject to the 2% Watercraft Sales and Use Tax or the 4.5% Retail Sales and Use Tax.
Many of the Taxpayer's clients elect, or are required to, obtain a marine titling document for their vessels from the United States Coast Guard ("USCG"). For example, lending institutions require that purchasers obtain USCG documentation when the vessel exceeds five net tons. I understand that documentation is applied for at the time of the sale, but the actual USCG marine document is generally not issued to the purchaser for about four to eight weeks.
The Taxpayer asks when a vessel is deemed to be documented for tax purposes: (1) at the time of purchase when application to the USCG for a titling document is made, or (2) when the titling document is actually issued by the USCG. In this regard, the Taxpayer wishes to advise its clients to pay the 2% Watercraft Sales and Use Tax at the time they purchase their vessels, but before the USCG titling document is received. The Taxpayer requests a ruling that this advice is correct.
Code of Virginia § 58.1-609.1(9) exempts from the Retail Sales and Use Tax "watercraft" as defined in § 58.1-1401 of the Watercraft Sales and Use Tax Act. Code of Virginia § 58.1-1401 defines a "watercraft" to be:
A vessel is subject to either the Retail Sales and Use Tax or the Watercraft Sales and Use Tax, but not both. The Watercraft Sales and Use Tax is imposed at the rate of 2% of the sales price of the vessel, with a maximum tax not to exceed $2,000. The Retail Sales and Use Tax is imposed at the rate of 4.5% of the sales price of the vessel, with no maximum amount. Therefore, there may be a significant difference in the amount of the tax a purchaser is required to pay on the vessel depending on whether the vessel meets the definition of a "watercraft."
The question of which tax applies at the time of sale is addressed by Title 23 of the Virginia Administrative Code 10-230-30. This regulation states that:
Watercraft purchased and documented without this State and brought into this State on or after January 1, 1982 may have valid documentation issued by the United States Coast Guard. Such vessels with valid documentation do not meet the definition of "watercraft." (Emphasis added.)
Based on this regulation, your clients are correct in paying the Watercraft Sales and Use Tax at the time of purchase because at the time of purchase the vessel does not have a "valid marine document." That the same vessel may, at a later date, receive a USCG marine titling document does not relieve the purchaser of the Watercraft Sales and Use Tax at the time of purchase. Further, the Retail Sales and Use Tax will not be imposed if the vessel is subsequently documented by the USCG. This is because the same vessel is subject to either the Retail Sales and Use Tax or the Watercraft Sales and Use Tax, but not both.
I trust that this information is helpful. Please contact **** at **** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31143I
Re: Request for Ruling: Watercraft Sales and Use Tax
Dear ****
This is in response to your letter of September 29, 2000, and previous correspondence regarding the Virginia Watercraft Sales and Use Tax.
FACTS
***** (the "Taxpayer") represents clients in brokerage sales and purchases of larger yachts. The nature of your inquiry centers on determining whether a vessel is subject to the 2% Watercraft Sales and Use Tax or the 4.5% Retail Sales and Use Tax.
Many of the Taxpayer's clients elect, or are required to, obtain a marine titling document for their vessels from the United States Coast Guard ("USCG"). For example, lending institutions require that purchasers obtain USCG documentation when the vessel exceeds five net tons. I understand that documentation is applied for at the time of the sale, but the actual USCG marine document is generally not issued to the purchaser for about four to eight weeks.
The Taxpayer asks when a vessel is deemed to be documented for tax purposes: (1) at the time of purchase when application to the USCG for a titling document is made, or (2) when the titling document is actually issued by the USCG. In this regard, the Taxpayer wishes to advise its clients to pay the 2% Watercraft Sales and Use Tax at the time they purchase their vessels, but before the USCG titling document is received. The Taxpayer requests a ruling that this advice is correct.
RULING
Code of Virginia § 58.1-609.1(9) exempts from the Retail Sales and Use Tax "watercraft" as defined in § 58.1-1401 of the Watercraft Sales and Use Tax Act. Code of Virginia § 58.1-1401 defines a "watercraft" to be:
- Any vessel propelled by machinery whether or not the machinery is the principal source of propulsion. The term shall also include any sail-powered vessel which is in excess of eighteen feet in length measured along the centerline. The term shall not include a seaplane on the water or a watercraft which has a valid marine titling document issued by the United States Coast Guard. (Emphasis added.)
A vessel is subject to either the Retail Sales and Use Tax or the Watercraft Sales and Use Tax, but not both. The Watercraft Sales and Use Tax is imposed at the rate of 2% of the sales price of the vessel, with a maximum tax not to exceed $2,000. The Retail Sales and Use Tax is imposed at the rate of 4.5% of the sales price of the vessel, with no maximum amount. Therefore, there may be a significant difference in the amount of the tax a purchaser is required to pay on the vessel depending on whether the vessel meets the definition of a "watercraft."
The question of which tax applies at the time of sale is addressed by Title 23 of the Virginia Administrative Code 10-230-30. This regulation states that:
- Marine documentation is issued by the United States Coast Guard to the owner(s) of vessels or watercraft as evidence of ownership in such vessels or watercraft. Valid documentation becomes void upon sale and must be reinstated in the name(s) of the purchaser(s). Therefore, for purposes of this chapter, no watercraft will be considered to have a valid marine document when purchased either new or used and every watercraft purchased on or after January 1, 1982 . . . will meet the definition of a "watercraft."
Watercraft purchased and documented without this State and brought into this State on or after January 1, 1982 may have valid documentation issued by the United States Coast Guard. Such vessels with valid documentation do not meet the definition of "watercraft." (Emphasis added.)
Based on this regulation, your clients are correct in paying the Watercraft Sales and Use Tax at the time of purchase because at the time of purchase the vessel does not have a "valid marine document." That the same vessel may, at a later date, receive a USCG marine titling document does not relieve the purchaser of the Watercraft Sales and Use Tax at the time of purchase. Further, the Retail Sales and Use Tax will not be imposed if the vessel is subsequently documented by the USCG. This is because the same vessel is subject to either the Retail Sales and Use Tax or the Watercraft Sales and Use Tax, but not both.
I trust that this information is helpful. Please contact **** at **** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31143I
Rulings of the Tax Commissioner