Congress May Sink Luxury Tax On Boats -- Move Would Help Revive Marine Industry
The federal luxury tax on yachts - which torpedoed boat sales and sank many dealers - may be overturned by Congress this summer. But recreational boaters may get bitten by a new, wider-reaching tax on marine fuel.
The repeal of the luxury tax could be a boon for boat makers and dealers in the Northwest, who say they have a stack of orders from customers waiting for the move.
Dealers say they have been hurt by the luxury tax because it is widely misunderstood. Although only the portion of a boat's price over $100,000 is subject to the tax, many consumers think the tax applies to all boats. Some dealers have posted signs on boats in their showrooms saying, "No luxury tax on this boat."
When high-rollers are ready to step up to a big purchase, they frequently balk at the tax. "It's not that they can't afford it, it's just that they refuse to pay it," said Kevin Roggenbuck, president of Sea Ray Sport Yachts on Lake Union. Dealers and manufacturers frequently absorbed the tax to move inventory, which further eroded profits.
As customers stayed away, boat building stalled. Nordic Tug, a Burlington manufacturer of 26- to 32-foot cruisers, is making one-third fewer boats than it did a few years ago. Washington state has lost 1,827 boat-building and repair jobs in the past four years, according to the state Department of Employment Security.
At the U S Marine manufacturing plant in Arlington, which makes the popular Bayliner line, employment is down to 800 from 1,250 in 1988. "It's been very difficult for them to stay in business with this tax in place," said Bill West, executive director of the Northwest Marine Trade Association.
However, some boat makers are wary of a companion proposal in Congress to make up the revenue lost from the luxury tax by extending the 20.1-cent-a-gallon tax on diesel fuel to recreational boats. Commercial boats would continue to be exempt from the tax.
That new tax on marine fuel could dampen any rush to buy yachts and large cruisers, the dealers say. The new tax, which could bring in $148 million over the next four years, would spread the tax burden among many boaters, not just those who buy expensive new boats.
"It's a good news, bad news situation," said David Pilvelait, a spokesman for the Boat Owners Association of the United States.
"It's good news for the manufacturers who have suffered from declining sales," he said, but it is unfair to transfer that burden to those who already own diesel-powered boats.
Pilvelait also said it is unfair that boaters should pick up some of the lost revenue now being paid by buyers of expensive furs, jewelry and planes.
Boat makers don't like the idea of the fuel tax, but they say the repeal of the luxury tax is needed immediately to save builders and dealers.
The impact of the luxury tax on sales of big boats has been nationwide. Sales have plunged more than two-thirds, to $621 million in 1992 from $1.9 billion in 1988. The crash put 25,000 people out of work, according to the National Marine Manufacturers Association. The sales drop meant the tax on boats brought in less than one-third the revenues that Congress expected.
The luxury tax also applies to automobile prices over $30,000, airplane prices over $250,000 and fur or jewelry prices over $10,000. Under Congress' new proposal, only the tax on automobiles would be retained, and its $30,000 threshold would be indexed to inflation.
Three previous attempts to overturn the luxury tax were halted by legislative gridlock during the Bush administration, but now the tax appears to be speeding toward repeal. The congressional committee hammering out President Clinton's deficit-reduction package is expected to include a provision to reverse the tax, and a vote could come this summer.
"It is pretty easy to demonstrate that it didn't raise revenue and that it was devastating to jobs," said Rep. Al Swift, D-Bellingham. "It was counterproductive all the way around." The proposed repeal would be retroactive to Jan. 1.
As soon as the tax comes off, dealers and manufacturers are expected to hire staff to meet the expected surge in demand. "We probably have 15 customers for $1 million boats who say they'll buy when the luxury tax goes away," said one large Seattle boat dealer.
An informal survey of three boat manufacturers by the Northwest Marine Trade Association last year found they would add 130 employees as soon as the tax was repealed. Roggenbuck at Sea Ray said he would hire three or four technicians and sales people immediately.
A flood of orders could also help businesses that sell related products and services such as moorings, fixtures, insurance, fuel and smaller vessels.
Although prospects look good for repeal of the tax, boat makers and dealers aren't counting on it yet. "We've been to the altar three times now," said West of the Northwest Marine Trade Association. "Nobody is going to get excited until it occurs."
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