Lower taxes, more income for all (Part 2)
While the Boating Associations of Ohio spars with the Ohio Department of Taxation over the latter’s decision to renege on a decade-old deal with Ohio’s dealers concerning the application of “use tax” (see Tuesday’s Dealer Outlook for details), two Florida associations took on the issue of “sales and use tax” and hit a home run for everyone.
In 2010, the Marine Industries Association of South Florida and the Florida Yacht Brokers Association recognized Florida’s sales and use tax laws were resulting in a regressive situation. Buyers were closing their deals “offshore” to avoid Florida’s 6 percent sales tax, and dealers and yards were losing out on large amounts of refitting, equipping and storage income. And, in such cases, there was no tax revenue for the state of Florida.
So they turned to the Florida legislature. They sought a sales and use tax cap, arguing it could benefit all parties and was particularly important to employment at Florida’s dealers/brokers/yards. A tax cap of $18,000 was ultimately passed, and the results were good enough that a big thank-you card from the Florida Department of Revenue to the marine industry would not be out of order.
The state’s Department of Revenue had projected the impact of the cap would be a $1.5 million loss during the first fiscal year (2011). Instead, it brought in more than $13.46 million in direct sales tax revenue. The latest study completed for MIASF and FYBA by Thomas J Murray & Associates (they have conducted three earlier industry studies) specifically examined brokered boat sales and found some startling results:
• More boat sales are now staying in the state instead of “offshore,” with at least 748 “capped sales and use tax” transactions during FY 2011 valued at over $915 million.
• Since the cap, sales for which no tax was paid (there are certain exemptions in Florida law) or were closed out-of-state dropped from 21.5 percent to 12.8 percent.
• The average sales price for transactions following passage of the cap has nearly doubled the value of closings taking place in Florida. More specifically, before the cap, the average pretax value of closings was $506,680, while the post-cap average has risen to $907,002.
• Notably, the sales price at which there is a “50/50 chance” the sale will close out of state is now over $7 million. Before the cap passed, it was just $1.9 million.
At least two good lessons can be gleaned from the Ohio tax problems and the success of the Florida tax cap initiative: (1) Florida’s associations actively sought and won the preferred permanently legislated solution to the benefit of all and (2) the Murray & Associates study clearly documents that the behavior of boat-buyers/owners is significantly affected by considerations of paying or not paying sales and/or use taxes.
In Ohio, out-of-state boat owners were outraged when the tax department billed them for “use tax” for bringing their storage, repair and refit business to Ohio dealers during the winter layup. The result was these boat owners stopped giving Ohio dealers their business and income and jobs were lost. Moreover, the state lost all the sales tax revenue pertaining to the services and repairs — a lose-lose debacle.
In Florida, it’s a win-win situation. Out-of-state closings and loss of the lucrative ancillary business, particularly on high-value brokered boats, were common before the state smartly passed an industry-backed sales and use tax cap. The cap has reversed the trend, bringing more business to Florida’s dealers/yards and boosted the state’s revenue, too.
We’ve been hearing lots of claims these days that lowering taxes can mean more jobs and increased revenue. True? I suppose it depends on the context. However, the contrast between Ohio and Florida definitely illustrates how seeking lower sales and/or use taxes on boats can clearly be a winning proposition for all and worth serious examination by others.