San Diego Case Study: 55′ Beneteau for $749k
San Diego Yacht Brokers, imagine, a client brings you a beautiful 2017 Beneteau Oceanis 55. The owner is firm at $749,000.00, and after touring the boat you can see why. The yacht shows a real pride of ownership, and your delighted to sell it at your brokerage. The boat is turnkey and is worth every bit of the asking price, but is significantly more than comparable boats in the market.
California Use Tax Adds an Extra $60K
California Use Tax in San Diego County is 7.75%; comparatively less than other counties in the State. For instance, that same boat sold in Long Beach would incur over $18,000.00 in additional taxes.
7.75% is still significant. When dealing with six figure purchases even a single percentage point can equate to substantial amounts of money. On that Beneteau 55 California Use Tax will add an additional $58,047.50 to the total cost of the boat. 7.75% brings the actual cost of that same Beneteau up to $807,047.50. Those almost 60k in extra costs can be a real deal breaker for some people. $810,000 sounds a lot closer to one million than to $750K to me.
Do Not Lower the Price
As a San Diego Broker your commission is based on the sale price of the boat before tax. Lowering, or eliminating, California Sales and Use Tax reduces the total cost of the boat without touching your commission. Additionally, you get to keep your word to the seller that you would not lower the price.
7.75% is one of the lower Use Tax rates charged throughout the State of California. Therefore, completing the transaction in a different county will not help lower the rate. If lowering the tax bill is not an option, we must eliminate it!
Abolish California Use Tax
California Use Tax is a transaction tax. This means according to the law of California certain transactions are taxable. But we can transform a taxable transaction into a non-taxable transaction. Through the use of an LLC we can create a situation where no tax is owed.
This is not an avoidance strategy or a means of tax evasion. This is a process of legally eliminating California Use Tax through careful transaction drafting.
Transferring the boat in to an LLC has the possibility of eliminating CA Use Tax. The new owner saves close to 50k, your commission stays the same, and you keep your commitment to the seller of staying firm on the price. Even after accounting for all fees the new owner still stands to save almost 80% off the original estimate.
If the savings alone do not convince you, there is another, arguably more important, reason to transfer the boat into a single asset LLC; asset protection. Boats are liabilities, and insurance may not always cover the costs in the event of a catastrophic failure. A single asset LLC will allow the owner to isolate liability, limiting it to the value of the boat, and protect their other assets. Couple this with its usage in eliminating California Use Tax and it is a win-win.
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.