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Luxury tax déjà vu at the state level

Industry fights N.Y. proposal; Illinois quickly shoots down similar measure

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As states look for creative ways to fill billion-dollar holes in their budgets, one big one - New York - is considering raising the sales tax on "luxury" purchases, including boats.

A luxury tax proposal also surfaced in Illinois, but was quickly pushed aside by a legislative committee.

In 1991, a federal 10 percent luxury tax on that portion of the price of a new boat above $100,000 severely cut into boat sales nationwide. Congress ultimately repealed that measure after it was blamed for the loss of thousands of boatbuilding jobs.

Now, New York Gov. David A. Patterson wants to raise sales taxes on boats and other luxury items to help fill a budget deficit of $15 billion. His plan would tack an additional 5 percent tax onto that portion of a new boat sale exceeding $200,000.

Marine industry lobbyists in the state are launching a grassroots effort to fight the proposal.

"We have to educate the governor's office on what this will do to business in New York," says Chris Squeri, executive director of the New York Marine Trades Association.

As of early March, no action had been taken on the proposal. Meanwhile, Squeri says, members of his association continue to lobby their state legislators on the devastating effect such a tax would have on their businesses.

Squeri says the tax would do nothing to increase state revenues, because consumers would simply buy fewer boats or purchase them out of state. That would hurt everyone - from dealers to marinas and other waterfront businesses, he says.

"It's a domino [effect] that's just going to be horrible," Squeri says.

The National Marine Manufacturers Association also has weighed in against the governor's plan, saying it would fail to provide New York with much-needed revenue.

"The impact of the proposed tax would hit New York marine dealers most immediately," the NMMA wrote in a letter. "About 38 percent of their sales are of boats 30-39 feet long, most of which retail for more than $200,000.

"Loss of even 20 percent of these sales to neighboring states, or to decisions to not purchase a vessel rather than pay the tax, would lead to even greater layoffs than already experienced in the New York market," the letter states.

The NMMA also pointed out that dealers have experienced significant sales declines since the state-operated Jacob Javits Center moved the dates of the New York National Boat Show to December. In 2001, attendance was 95,000; at the most recent show, it had dropped to less than 50,000.

A luxury tax also was proposed in Illinois, though it was quickly shelved by state lawmakers.

Mark Adams, vice president of sport shows for the NMMA, along with opponents from six different marine-related organizations and businesses, attended a hearing of the legislature's Revenue and Finance Committee to oppose the tax.

But before testimony could be heard, the committee echoed industry concerns and withheld a motion to take up the proposal.

"While we understand Illinois must address its looming budget deficit, we are pleased the committee realizes a counterproductive tax like this one is not the answer," said David Dickerson, NMMA director of state government relations, in a statement.

"Despite assurances from the bill's sponsor that similar measures will not be pursued, we will continue to monitor any new legislation moving forward," Dickerson says.

This article originally appeared in the April 2009 issue.

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