Saturday, March 22, 2008

Partisan Politics Kills Effort to Close Yacht Tax Loophole

by Assemblymember Dave Jones

I recently saw an advertisement for a yacht that looked really nice. The yacht’s name said it all. "No Worries" was a true beauty, at 44 feet long with all the amenities. But the $300,000 boat isn’t in the family budget.

Nor is it for most Californians. Especially not for many of the state’s working families, who struggle to pay for essentials like rent, food, utilities, and child care.

The California Budget Project estimates that for family of four it takes $72,343 per year to meet basic expenses. California has about two million working families that make less than half that income.

While ordinary Californians are struggling to make ends meet, those rich enough to buy a yacht like the one I saw in the ad avoid paying taxes by taking advantage of a huge tax loophole.

The yacht tax loophole works like this. If you buy a yacht and take delivery out of state and keep it out of state for 90 days before bringing it back to California, you can escape paying sales or use tax on the purchase. Just sail southward and choose one of the many "90-day yacht clubs" available in Ensenada, Mexico, then stash the boat there.

When you and I buy something at a local store, we pay a sales tax. But if you are rich enough to buy a yacht, you can escape the same rules that apply to everyone else. This is a tax loophole big enough to sail a yacht through. The same loophole applies to airplanes and RV’s. Take delivery out of state, and remain out of state for 90 days and avoid paying a California tax. Collectively these loopholes cost the state about $26 million a year in avoided taxes.

Earlier this year I introduced legislation to eliminate this "sloophole." My proposal to eliminate the yacht tax became a part of the Assembly Democrats package of budget solutions to respond to the current year budget deficit.

These budget solutions included cuts to important programs, like education, health care and funding for our courts. While these mid-year cuts are painful, they are also necessary to bring our budget into balance. Taken together, these budget solutions reduce next year’s budget deficit by $7 billion dollars, which represents roughly half our projected deficit.

Included within the package of budget bills that the Assembly voted on was a bill to eliminate the yacht tax loophole.
With a $16 billion ($16,000,000,000) state budget deficit, you would think that everyone could agree that the time has come to close the notorious "Yacht Tax Loophole." Governor Schwarzenegger certainly agrees. His budget proposal closes the yacht tax loophole.

There should have been bi-partisan support in the Assembly to close this egregious loophole. Sadly, Republican Assembly members voted once again last month to allow California’s yacht purchasers to avoid paying taxes.

Incredibly, not one single Republican Assemblymember voted to support eliminating the loophole when it came up for a final vote. It failed passage as a result. Thurston Howell III would have been proud.

Assembly Republicans justified their refusal to close this special interest tax loophole by arguing that it would hurt the economy to collect taxes from yacht purchasers. This is simply not the case. The loophole was closed for a time earlier this decade. The non-partisan Legislative Analyst’s Office, in reviewing the impact of closing the loophole earlier this decade, found no harm to the economy.

Assembly Republican leaders also argued that the tax loophole was small in amount. I don’t know about you, but $26 million annually is a lot of money to me.

It is simply unconscionable to protect rich yacht purchasers while the rest of us are expected to pay taxes on goods we purchase. It is even more outrageous to vote against closing special interest tax loopholes at the same time cuts are being made to education, health and other programs that help ordinary Californians. We should immediately close the yacht tax loophole for good. The Thurston Howells of the world will do just fine without the tax loophole.

Dave Jones (D-Sacramento) represents the 9th Assembly District in the California Legislature.

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