Lower taxes, more income for all (Part 1)

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A recent report that the Ohio Department of Taxation is going back on a deal it made with the marine industry immediately grabbed my attention, because I was the one who agreed to the deal a decade ago. This new dilemma, compared with a similar, though not identical, situation in Florida, gives us a great case study for lowering taxes on boats and thereby generating increased revenue for all concerned.

Here are the specifics. About a decade ago the Ohio tax department suddenly decided to levy the state’s “use tax” on boats owned by out-of-state residents that were being winter-stored with Ohio’s dealers/boatyards. While the tax department had never done so before, it took the position, without any notice, that the boats were in Ohio for more than an allowable 90 consecutive days and, therefore, the owners owed the “use tax.”

All hell broke loose. Boat owners were mailed tax bills. Dealers cried foul. Some of the out-of-state owners sued dealers for failure to disclose the liability (dealers didn’t know). Some owners were so angered that they even ran ads in Michigan, for example, warning fellow boaters to never take their boats to an Ohio dealer for storage and winter repairs. Next winter, to no one’s surprise, the flow of boats for winter work and storage from outside Ohio disappeared.

What the tax department had done was shoot everyone in the foot – dealers, boatyards, employees and even the state treasury. After all, hundreds of thousands of dollars in winter service and repairs subject to Ohio’s regular sales tax was gone. So were the payroll taxes from the jobs lost when the work dried up. It was a text book example of shortsightedness.

Enter the Boating Associations of Ohio. What the tax department did was legal under Ohio’s existing “sales & use tax” statutes, so the association moved to get a legislated exemption from the “use tax” provision for all out-of-state boats stored in Ohio. However, before our bill went into the hopper, the tax department wanted a meeting.

After acknowledging their actions were more harmful than good, the state department revealed a fear that our bill could become a vehicle for many others to try to ride for exemptions from the “use tax” law. So they offered to cease future actions against winter-stored boats from out-of-state if we’d back off our bill. It was decision time: Do we take the deal or go through the legislative process?

As Boating Association of Ohio executive director, I decided to take the deal. It seemed like the best decision, although I remember being concerned that without impacting the exemption in the law, the people who made the deal would someday be gone and the problem could return.

It’s back. The tax department has new faces. Hopefully, they will also realize the detrimental effect of returning to such a counterproductive application of the “use tax.” That said, it also illustrates that any decision to accept less than a permanent legislated change might not be the best one for the long haul. The Boating Association of Ohio could face the same decision again.

In Part 2 of this blog on Thursday, we’ll contrast Ohio’s actions with those undertaken in Florida by the Marine Industries Association of South Florida and the Florida Yacht Brokers Association. They advocated a change in their “use tax” law, too. But they made it permanent and results show an amazing benefit to the marine industry as well as the state treasury. It is, therefore, a model that could possibly be beneficial to other states.

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