Long Beach Case Study: 2012 Beneteau Sense 50
Your brokerage has recently taken on a new sailboat, a 2012 Beneteau Sense 50. The owner is asking $449,000.00 for the sailboat. You love the boat and are excited to have it listed through your brokerage, but at $449K you know you are going to have a tough time selling it. Comparable sailboats are listed for about a hundred thousand less, but the owner is firm on the price.
Let us explore a couple of options for lowering the true cost of this vessel without touching the sale price or your commission.
Taxes = Almost $50K
California Use Tax will apply to this sale, adding an additional $46,022.50 to the cost of this boat. This brings the total price up to almost $500k. This is because Long Beach is based in Los Angeles County, and with the added city tax, boat purchases in Long Beach will accrue a Use Tax rate of 10.25%.
We can all agree that money spent on taxes is money down the drain. The additional costs added by taxes increases the buyer's total costs, without putting additional money in the seller's pocket or yours. We have two chief options to lower the true cost of the sailboat: (1) complete the transaction in a different county, (2) have the seller transfer the boat into a single asset LLC.
Do Not Lower the Price
CA Use Tax will apply to the sale of this vessel. At 10.25% Long Beach charges one of the highest Use Tax rates in the State, if not the highest. Compare this to San Diego or Newport Beach with a Use Tax rate of 7.75%, a 2.5% difference.
2.5% admittedly does not sound like that much, but on six figure purchases even a single percentage can make a significant difference. In our current example simply completing the transaction in another county can save about $11,225.00.
Eliminate the Whole $46K
Reducing the Use Tax rate by 2.5% brings the total tax bill down to about $35K. This is significantly better than the original $46K, but we can still do better. Through a single asset LLC we can eliminate California Sales and Use Tax all together. That's right, we can create a non-taxable transaction. This means we functionally lowered the cost of this boat by $46,022.50 without touching the sales price or your commission.
As experienced attorneys in California Sales and Use Tax we can create non-taxable transactions. There are no gimmicks or evasion strategies. The boat owner will get a certificate from the government of California acknowledging that the transfer is free from tax.
+ Asset Protection
Boats are a liability and insurance does not always provide adequate protection. By transferring the sailboat into a single asset LLC we can further protect the owner against a catastrophic loss. We can protect the owners other assets, while providing them a backstop in case of the unthinkable.
We are here to Help
The experienced attorneys at p.Law are here to help. We are transaction experts with a thorough knowledge of California Sales and Use Tax law. We have the extensive knowledge required to defeat California Sales and Use Tax.
If you want to learn more about how we can save your clients almost 80% on their next boat purchase give us a call or click the button below.