Tax Type
Watercraft Sales and Use Tax
Description
WATERCRAFT SALES AND USE TAX TO THE SALE OF BOAT MOTORS
Topic
Property Subject to Tax
Date Issued
06-27-1994
APPLICATION OF THE WATERCRAFT SALES AND USE TAX
TO THE SALE OF BOAT MOTORS
This bulletin is intended to notify dealers of a change to the Virginia Watercraft Sales and Use Tax Act effective July 1,1994. This notification affects dealers who are in the regular business of selling watercraft and all other retail dealers who sell boat motors.
Current Rule
Under Va. Code § 58.1-1402, the Watercraft Sales and Use Tax (Watercraft Tax) is imposed on the sale of watercraft sold in Virginia or the use in Virginia of watercraft. The rate of the tax is 2% with a maximum tax of $2,000. Watercraft subject to the 2% Watercraft Tax are not subject to the 4.5% Retail Sales and Use Tax (Retail Tax).
A "watercraft" is defined as: i) a boat 15 feet or more in length powered by a motor in excess of 25 horsepower, and ii) a sailboat in excess of 18 feet in length.
Under current law, the sale of a motor, sold separately from the boat, is subject to the 4.5% Retail Tax.
Change in the Law
Effective July 1, 1994, any motor used to power a watercraft as defined above, and sold separately from the watercraft, is itself deemed a watercraft. Therefore, a motor sold separately from the boat may be subject to the 2% Watercraft Tax rather than the 4.5% Retail Tax.
Administering the Change in Law
In administering the new law, the Department will classify boat motors into two categories: Motors in excess of 25 horsepower (large motors) and those motors 25 horsepower or less (small motors).
Sale of Large Motors (in excess of 25 HP)
The sale of a large motor is deemed the sale of watercraft and is subject to the 2% Watercraft Tax. Dealers who are in the regular business of selling watercraft, and who have agreed with the Department to collect and remit Watercraft Tax on behalf of their customers, are directed to collect the 2% Watercraft Tax on the sale of large motors.
If a dealer has not agreed with the Department to collect and remit Watercraft Tax, the dealer must charge the 4.5% Retail Tax. The department will subsequently refund the 2.5% difference (between the 4.5% Retail Tax and 2% Watercraft Tax) directly to the customer upon application by the customer to the Department.
Sale of Small Motors (25 HP and less)
Under the new law, it is anticipated that most sales of small motors will continue to be classified as the sale of tangible personal property subject to the 4.5% Retail Tax. For example:
Example 1: A customer owns a 17 foot rowboat and purchases a 20 HP motor for that boat. Since the combination of a 17 foot boat powered by a 20 HP motor is not a watercraft as defined above, the 4.5% Retail Tax is correct on the sale of the motor.
Therefore, in most instances there is no change in the dealers' collection of the 4.5% Retail Tax on the sale of small motors.
However, in some cases the sale of a small motor may be the sale of a watercraft:
Example 2: A customer owns a 19 foot sailboat (which is a watercraft as defined above) and purchases a 10 HP motor for use on the sailboat as auxiliary power. In this instance, the 10 HP motor is a watercraft.
Example 3: A customer owns a 20 foot bass boat powered by a 50 HP motor (which is a watercraft as defined above). In addition to the large motor, the customer also wants a small, quiet motor to use on the bass boat and so purchases an electric trolling motor. In this instance, the electric trolling motor is a watercraft.
Dealers who are not registered to collect and remit the Watercraft Tax on behalf of their customers must charge the 4.5% Retail Tax on their sales of small motors (as they have been doing prior to the law change). In those instances when the small motor is deemed a watercraft (as in Examples 2 and 3 above), the Department will refund the 2.5% difference (between the 4.5% Retail Tax and 2% Watercraft Tax) directly to the customer upon application by the customer to the Department.
Dealers who have agreed with the Department to collect and remit the Watercraft Tax on behalf of their customers must also collect the 4.5% Retail Tax unless the dealer can document that the small motor is classified as a watercraft. Such documentation must include: i) a written statement from the customer that the motor will be used on a watercraft (as in Examples 2 and 3 above); and ii) the title number issued by the Virginia Department of Game and Inland Fisheries for the watercraft on which the small motor will be used.
Notification to Customers
The Department seeks the help of dealers to notify customers that they may be eligible for a partial refund of the tax paid on boat motors. Forms and instructions for the customer to use in applying for the partial refund will be made available to dealers, and dealers are requested to distribute them to their customers.
For additional information, please contact the Department at (804) 367-8037.
Rulings of the Tax Commissioner