The Day – Boat sales on the rise since Connecticut lowered taxes

In the first seven years after the Great Recession, Rick Dieterich discovered that his Mystic business, Springline Yacht Sales, was in trouble. But things started to improve in 2016, and then in 2018 he had a record turnover of $ 3.6 million.

While 2019 isn’t even half over, it has made $ 3.9 million in sales and expects around $ 600,000 more in the remaining months, most of which are “pretty much dead” for sales.

He said the average sale is in the range of $ 400,000, but called them “workers’ boats,” for which buyers typically take out a 20-year mortgage – as if paying for a second home.

Dieterich notes that there are “probably a multitude of factors involved” in the success of the past year or two, but he attributes some of it to the Connecticut General Assembly which lowered the tax on boats l ‘last year. Effective July 1, 2018, the sales tax on boats, boat engines and boat trailers was reduced from 6.35% to 2.99%.

The goal was to better compete with Rhode Island, which levies no sales tax on boat purchases. In New York City, combined county and state sales taxes mean total sales taxes range from 7% to 8.875%, but only the first 230,000 $ 230,000 of a boat’s price is taxable.

Kathleen Burns, executive director of the Connecticut Marine Trades Association, said the organization has been working for four years to lower the tax.

Gov. Ned Lamont’s budget proposal in February would lower the tax to 6.35%, while the Finance, Income and Surety Committee’s revenue bill would keep it at 2.99%. Senator Heather Somers, R-Groton, a strong advocate for reducing the boat tax, called the move a “very wise and thoughtful move” on the part of the committee, but she does not know what the budget will look like final.

Local boat dealers see positive impact of lower taxes

Between the February proposal and the committee’s favorable report on its alternative in May, there was a public hearing on Senate Bill 877, a statement of income for the execution of the budget. It was a high-profile audience, with massage therapists, architects, accountants and more, witnessing how additional taxes would hurt their industries.

In the middle of the testimony hours of March 15, several people called for the retention of the boat sales tax rate of 2.99%.

Burns said average boat sales increased 41% per month, marinas reported an occupancy increase of 65 to 78% and 85% of all dealerships have hired additional full-time staff since July. 2018.

She also noted that the winter season was up 8% from previous years, and “winter storage is the engine of off-season work, labor, and parts that keeps things going. workforce all year round, avoiding layoffs and unemployment claims “.

Tasha Cusson of Westbrook Atlantic Outboard New and Used Boat Dealer said his company has invested over a million dollars in the company over the past year, which he wouldn’t have done if employees thought the sales tax cut was temporary.

Ron Helbig and Alexa Kangley of Noank Village Boatyard in Groton said if the boat tax was increased again, customers would move to other states – as would jobs in the marine industry.

“When we lose boat sales and boat slips to neighboring states, we also (lose) tax revenue from restaurants, hotels, spas, entertainment venues, etc.,” Kate Mosley wrote, responsible for the Saybrook Point Marina. “Increasing taxes on the occupancy and sale of boats will drive tourists and jobs out of the state, resulting in an overall LOSS of tax revenue.”

Although Dieterich did not submit a written testimony, he said he was on Capitol Hill wearing his “Don’t Sink an Industry” t-shirt. Asked about local lawmakers who have advocated a drop in the boat tax, Dieterich quoted Somers, former Senator Andrew Maynard and Representative Joe de la Cruz, D-Groton.

Somers wanted the boat tax to be eliminated entirely, on a par with Rhode Island, but 2.99% was the compromise. She said someone wrote her a thank you note because he could finally afford a boat for his family. Somers pointed out that many boat sales are “not mega-yachts” but boats costing around $ 20,000.

Don MacKenzie, president of Boats Incorporated at East Lyme, told The Day last week that his business has grown from 25 full-time employees last May to 29 now, and that his marina is full – a type of growth that he hasn’t seen in years.

“It has been so difficult to compete with Rhode Island,” he said in a written message. “The lower rate first and foremost kept CT’s customers in our state, and for customers who may have been sitting on the fence, they’re buying now. Not only has the boating industry benefited, but many local businesses have also benefited. “

The owners of Reynolds’ Boats in Lyme and regional brokerage firm Brewer Yacht Sales also told The Day they saw a positive impact on boat sales from the sales tax cut.

It is difficult to measure the extent to which lower taxes have a multiplier effect on other maritime industries. The general manager of Norwest Marine, which offers dock slips and Yamaha parts to Pawcatuck, said he had not seen an impact. The owner of Dodson Boatyard, a service yard in the Borough of Stonington, said he had not felt any impact from the drop in the boat tax.

What is the impact of the drop in the rate on tax revenue?

Through a Freedom of Information Act request to the state tax services department, The Day secured a monthly sales and use tax owed to boat dealers from January 2009 through February. 2019.

Although the tax rate was cut by more than half as of July 1, 2018, data shows that tax revenue fell from $ 412,738 in July 2017 to $ 476,985 in July 2018.

But from August 2017 to August 2018, revenues fell by almost 62%. In every month since, revenues have declined from the same month a year earlier, but by well under 50%. Overall, tax revenue was $ 2.1 million from July 2017 to February 2018 and $ 1.6 million from July 2018 to February 2019.

In her testimony written in March, however, Kathleen Burns of CMTA showed charts indicating that year-over-year tax revenue increased for each month from September to January. Burns told The Day that because the state only had figures up to August 2018, she used information provided by dealers to CMTA on boat sales. She said another complicating factor is the uncollectible tax when someone goes out of state.

“I’m very, very confident that over the course of a full year we’ll see the numbers line up,” Burns said.

State data supports its argument that boat tax revenues are generally at their highest level in May, so time will tell how that May compares to last May. Brewer Yacht Sales owner Hal Brewer also noted that due to bad weather this spring, business is not where it was a year ago.

Somers’ attitude is that you have to look at the impact of lowering the boat tax on income over a longer period. She remembers saying last year, “Give us five years at this rate, and we’ll show you increased income.” “

The non-partisan tax analysis office last year projected lowering the tax rate on boats would result in a loss of revenue of $ 2.3 million for the general fund and $ 200,000 for the special transport fund.

Data from the Department of Revenue Services shows that the sales tax on boat dealers brought in $ 4.4 million for the fiscal year ending June 30, 2018. The loss in revenue for that fiscal year does not appear to be. almost as big as the OFA had expected, as it would be. mean only $ 310,000 in taxes for March-June. It seems unlikely for the busiest third of the year in the industry.

The projected governor’s office that restoring the boat tax to 6.35 per cent would result in a gain of $ 2.3 million in the general fund for each of the next two fiscal years. Two spokespersons for the governor’s office did not respond to requests for comment on the number.

The revenue from the boat tax alone does not show the impact of the lower rate on income taxes, as many dealers and marinas claim that the lower taxes have caused them to hire more people or on fuel taxes. Burns wrote in testimony that the average company in the marine industry pays over $ 90,000 in payroll taxes, up about 14% from 2017.

According to 2017 nautical division report from the State Department of Energy and Environmental Protection, the number of vessel registrations in Connecticut has declined each year for the past decade, from a high of 112,319 in 2007 to 94,691 in 2017, lower than at any time over the past 30 years.

Burns attributes this to the Great Recession, Super Storm Sandy, and Hurricane Irene.

Jim Turowsky, chief executive of Norwest Marine, said one of the problems is that young people aren’t getting into boating as much anymore.

“Even if they grew up boating, if they didn’t have a boat that was left to them by their parents, it doesn’t matter, they just don’t get started anymore,” he said. declared.

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