Marina Del Rey Case Study: 2015 Lagoon 450
Your brokerage recently listed a 2015 Lagoon 450 for sale in Marina Del Rey. The owner has spent a couple of hundred thousand dollars in upgrades which is why the vessel is listed about a 100k above the market price. The boat is turnkey, and you feel it is a good deal at the $649,000.00 asking price, but it is going to take some time to find the right buyer.
California Use Tax Adds an Extra $60K+
California Use Tax will add an extra $61,655.00 to this vessel, bringing the total over $710K. California Use Tax is based on the county where the transaction takes place. Marina Del Rey is in Los Angeles County which has a Use Tax Rate of 9.5%. The Lagoon 450 is already an additional 100K over the market price, meaning there's almost an additional 10K in taxes over comparable boats.
We Can Lower That Tax Bill
As a broker your commission is based on the sale price of the boat. The $649,000.00 price is firm, but there are a couple of ways we can lower the real cost to the buyer without touching your commission. First, we can complete the transaction in a different county. Every percentage matters when you are talking about purchases in this price range. Second, we can eliminate the tax completely by having the seller transfer the boat into an LLC.
Complete the Transaction in a Different County
Marina Del Rey is in Los Angeles County and at 9.5% has one of the highest Use Tax rates in the State of California. Newport Beach is close by and has a Use Tax rate of 7.75%. The difference in these two counties is only 1.75%; does not sound like much.
A single percentage point can make a substantial difference. In this example the 1.75% saves more than eleven thousand dollars and keeps the total transaction under 700K. We just made this boat 11K cheaper without touching your commission.
Eliminate That Tax Bill
It is possible to eliminate California Sales and Use Tax on this vessel. If the seller transferred ownership into a single asset LLC, we would be able to create a situation that takes a taxable transaction and makes it a non-taxable transaction. We can make this boat over 60K cheaper without ever lowering the price or touching your commission. Besides eliminating California Sales and Use Tax the seller now enjoys added asset protection incase of a catastrophic failure.
LLC Ownership Isolates Liability
All boats are a liability, but absentee ownership increases the risks associated with the vessel. For this example, let us assume the owner has moved on and is leaving the boat at your dock; besides the occasional showing, the boat is left unattended. The chances of a catastrophic failure are always present on a boat, thru-hulls fail and bilge pumps stop working. A boat is constantly fighting to keep water out and to stay afloat.
If this vessel should sink the damage it could create in its wake could easily exceed the liability coverage on the insurance policy. This can and does happen. With fuel clean up costs, repairs to surrounding boats, and dock damages the owner may be on the hook for significantly more than the boat is worth.
There is an easy solution to the above problem. The owner transfers the boat into an LLC. This will protect their other assets and provide a means of avoiding California Sales and Use Tax when selling the vessel.
LLC ownership allows the boat's owner to isolate the liability associated with the boat and protect their other assets. Instead of being liable for the full amount of damages, the owner's liability is limited to value of the boat.
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.