In a time of budget cuts, yacht sales sail through untaxed in Missouri

By MIKE McGRAW

The Kansas City Star

DAVID EULITT/The Kansas City Star

The purchase of a large boat similar to these docked on the Lake of the Ozarks is exempt from sales taxes in Missouri, a fact that troubles some officials in a time of budget cutting.

Cash-strapped legislators have recommended spending cuts for Missouri schools and shelters for battered women, but so far the yachting class can enjoy another season of clear sailing.

Thanks to a longstanding tax exemption, Missouri’s marina set can opt to pay a small fee in lieu of sales taxes and shave as much as $30,000 off the purchase of a $500,000 boat.

That tax exemption alone is depriving state and local coffers of more than $6 million a year, according to some estimates. It’s just one of more than 130 untaxed transactions that are getting renewed attention in Jefferson City because of the state’s continuing budget crisis.

For now, however, yachts are treated like baby formula for the poor, tickets to the state fair and even newsprint —all are exempt from state and local sales taxes.

But if you’re buying a small bass boat or runabout, forget about any tax breaks. You’ll pay the full load.

“One person’s tax exemption is another person’s loophole,” said Ted Farnen, a spokesman for the state’s Department of Revenue, which takes no position on the issue.

Of the 650,000 boats registered in Missouri, more than 16,000 qualified for the exemption, according to the Revenue Department, but no one knows precisely how much the big boat or other state sales tax exemptions cost Missouri taxpayers.

In the last seven years, the state auditor has asked the Revenue Department three times to come up with such a figure, but revenue officials declined, maintaining that it would “increase the burden of reporting on taxpayers.”

As recently as last month, the auditor noted that “the cost in terms of reduced state revenue for each exemption cannot be determined.”

Boat sellers contend the tax break is a good deal for the state. The additional revenue that taxing large boats would generate would be more than offset by sinking boat sales and lost jobs, said Mike Atkinson of the Lake of the Ozarks Marine Dealers Association.

Others aren’t so sure.

“That’s just kind of silly,” said Amy Blouin, the executive director of the Missouri Budget Project, an independent, nonprofit public policy analysis organization. “I think most Missourians believe that if you can afford a million-dollar yacht, you should be able to contribute.”

Yet some buyers of big boats aren’t bashful about flaunting their good fortune. Boats that qualify have been christened with such names as “Tax Haven,” “Tax Seaduction,” and even “The Greedy Bastard.”

Exemption-eligible boats appear to be especially popular with Jefferson City lobbyists, whose colleagues have fought for years to keep the tax break on the books.

Lobbyist Bill Gamble said he rarely uses his 29-footer — “Special Interest” — moored at the Lake of the Ozarks. He thinks he remembers taking advantage of the sales tax exemption, but said he hasn’t been on the boat for two years.

“I even forgot I owned it until you called,” said Gamble, who added that he “didn’t buy a larger boat just to get around the sales tax.”

Gamble said he just needed a boat large enough to be safe on the lake, where there are no size limits and sales-tax-exempt 50-footers with such names as “Psycho Ward II” are not uncommon.

Lobbyist John Bardgett said he hoped he got the exemption when he bought his 28-footer, “The Noodle,” but he couldn’t recall. “I’ll have to ask the people who bought it for me,” Bardgett said.

Other lobbyists and boat owners apparently are reluctant to talk about the break. Leo Bub, who lobbies for AT&T, didn’t want to discuss his 30-footer, “Le Grasta De” (“By God’s Grace”).

Lobbyist Richard McIntosh, who has a 38-footer called “Deductionis Absurda,” did not return several calls to his office seeking comment.

‘Money talks’

In Missouri, a rising tide of tax exemptions does not lift all boats.

The yacht exemption only applies to boats large enough to be registered with the U.S. Coast Guard’s National Vessel Documentation Center. That generally includes boats more than 25 feet long.

Owners of boats that qualify pay a fee in lieu of sales taxes. For example, the fee for a $750,000 boat is $10,500, or 1.4 percent of the sales price. If the boat were purchased in Kansas City and taxed at the full rate, the sales tax would be much higher — $57,937.

State officials said they aren’t sure why the little boat buyer gets shortchanged in Missouri. But Jay Clark at Four Seasons Yacht Sales near Lake of the Ozarks said the answer’s obvious to him.

“It’s no secret in this country that money talks, and the guys that have the bigger boats are the ones that influence the politicians,” Clark said.

The exemption dates to 1986, and was added to a bill introduced by Rep. Flavel J. Butts, a Camdenton Republican who died in 1990. Under that law, big boat buyers paid no sales taxes or fees from 1986 to 1990.

Fees in lieu of taxes were instituted later, and have gone up over time. However, they still remain a fraction of actual sales taxes, and the fee percentage gets lower as the price of the boat goes up.

Larry Rohrbach fought hard for years to scuttle the exemption before he left the Missouri Senate in 2002.

“I think I sponsored legislation to kill it every year I was there,” Rohrbach, a California Republican, said recently. “It was just a matter of fairness.”

Rohrbach’s bill estimated the state and local tax losses in 2005 to be $6.3 million. The sales tax pays for state programs and various local government functions, from ambulance districts to police departments.

But Rohrbach said boat dealers lobbied just as hard against him and argued that they “wouldn’t sell boats anymore if they had to pay sales tax.”

Rohrbach and others also were concerned that the sales tax exemption on large boats made it difficult for some counties to identify and collect personal property taxes on the vessels.

That problem persisted until 2007, according to the Missouri Tax Commission, when a change in state law required showing personal property tax receipts when registering a boat, much like car owners must do when registering a vehicle.

Sinking revenues

Big boats aren’t alone when it comes to sales tax breaks in Missouri.

In all there are 132 exemptions, according to the legislature’s Joint Committee On Tax Policy. And the list keeps growing. One offered in the House this year would exempt yoga lessons from sales taxes.

But some lawmakers think it’s time to take a hard look at the practice. For one thing, shrinking tax revenues threaten many state programs, including health care for the poor and child-care subsidies.

Indeed, the sales taxes avoided by yacht owners over the last two years would pay for most of the child care subsidy for low-income workers that legislators propose cutting from the 2011 budget.

“This will force parents to choose to give up their jobs or risk putting their children in potentially unsafe situations,” said Scott Gee, the executive director of the advocacy group Citizens for Missouri’s Children.
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