The US state of Washington is considering a 10 per cent surcharge on recreational boats, planes and RVs with prices exceeding $500,000, as part of a new piece of legislation, Senate Bill 5801, being heard today (22 April) in the House.
The bill's 10 per cent tax on luxury vehicles, vessels and aircraft was proposed by Sens. Marko Liias (D-District 21) and Curtis King (R-District 14) during the amendment process, just days before the Senate voted.
As it is written, the additional tax would apply only to "the portion of the selling price in excess of $500,000", or in the case of a lease requiring periodic payments, "the fair market value of the recreational vessel in excess of $500,000 at the inception of the lease".
The Senate passed the amended SB5801 on 29 March with 31 to 18 votes in favour, sparking opposition from several trade bodies that argued the pending legislation could have devastating effects on their respective industries.
For instance, the Aircraft Owners and Pilots Association (AOPA) released a statement suggesting that SB5801 would result in job losses for the sector, reduce demand, discourage the purchase and registration of aircraft in Washington state, negatively impact rural communities that rely on noncommercial aircraft for medical flights, emergency services and transportation, and make the state's aviation industry less competitive overall.
The National Marine Manufacturers (NMMA) issued a similar release on 1 April calling for its members to oppose the legislation. "While it may sound like a tax targeting the wealthy, history shows this kind of measure can backfire, driving boat purchases out of state and hurting middle-class jobs and small businesses in marine manufacturing, repairs, marine services and tourism," NMMA president and CEO George Harris exclusively told BOATPro. "Recreational boating and fishing is an $8.1 billion industry in Washington, supporting more than 23,000 family-wage jobs. This tax may bring in some revenue, but it will almost certainly cost good jobs and drive business out of state."
As boat sales decline, Harris said that demand for boat manufacturing, repairs and marina operations would all fall as a result. "That hurts coastal economies that rely on boating, from charter operations to restaurants and rental services," he added. One such town, Anacortes in the northwest corner of the state, is home to 78 local marine businesses with over 450 employees, all of which would ostensibly be at risk.
"Washington already imposes an annual value-based excise tax on boats, contributing approximately $20 million annually, equating to a de facto luxury tax and making this proposed tax a double hit to boat owners," said Harris. The effect would likely push buyers to purchase and register boats in other states, which Harris argued will ultimately drain sales and excise tax revenue from Washington while also impacting local boat builders and dealers.
Daryl Wakefield, president of Washington-based yacht builder Westport Yachts, expressed concern over the effects of SB5801 and the number of clients the yard stands to lose who are based in the state. "Any new tax that affects the ability for customers to purchase any Westport product is a hindrance," Wakefield told BOATPro. "For a $30 million yacht, this would add $3 million on top of the $3 million sales tax. It would kill our industry."
Worth Avenue Yachts managing director Ray Prokorym said the bill would be equally as devastating for yacht brokerage firms. "In Seattle, our company sells approximately 40 used boats per year, with the majority of those being over $1 million," he said. "These sales bring a significant amount of tax to the state. Additionally, each boat sale puts hundreds of people to work, including technicians, yard workers, fuel stations, detailers, restaurants and general tourism. This proposed luxury tax will have a catastrophic effect on our business and likely will shut us down.”
According to Harris, there is historical precedent to suggest that the proposed legislation would fail to generate its targeted revenue. "In 1991, a federal luxury tax [including a 10 per cent tax on boats above $100,000] caused a 77 per cent drop in boat sales and the loss of more than 25,000 jobs [within the boat building sector]," Harris explained. "It raised just over half the projected revenue ($16 million vs $31 million), while $24 million was spent on unemployment benefits." The tax against luxury items (including cars, boats, jewellery, furs and private planes) was later repealed with bipartisan support.
Another instance of a luxury tax, this time in Canada, saw then Prime Minister Justin Trudeau's Labour government place a luxury goods tax on boats valued over $250,000, beginning from September 2022. The tax collected 10 per cent of the total price paid or 20 per cent of the price on boats valued at $250,000 or more – whichever is less – on top of GST and/or HST on the retail price. "Canada’s luxury tax led to an 85 per cent drop in boat sales, pulling $211 million (CAD) out of the economy," said Harris.
Kevin Roggenbuck, CEO at shipping and logistics company Union Marine, echoed a similar sentiment. "I can tell you from first-hand experience that customers will simply not pay this tax, meaning they will simply not purchase a boat," he said, pointing to the relative attractiveness of neighbouring states. "We already have a 10 per cent sales tax, and we’re sitting next door to two states with zero sales tax and zero luxury tax [...] We would be actively encouraging, if not forcing, boat buyers to leave our state if they want to purchase a boat. The end result will be no luxury tax collected, and massively reduced sales taxes collected."
Today's hearing will offer the public a chance to voice their support or concern over the uptake of SB5801, and will be followed by a private session in the House on 23 April.
BOATPro will continue to update this story as it develops.