97-484 | Virginia Tax

Tax Type

Watercraft Sales and Use Tax

Description

Tax Bulletin

Topic

Rate of Tax

Date Issued

12-19-1997

Virginia Department of Taxation

December 19, 1997 97-5

WATERCRAFT SALES AND USE TAX

This bulletin is intended to notify interested parties of changes to the Virginia Watercraft Sales and Use Tax Act. Effective January 1, 1998, the definition of a "watercraft" is expanded to include any vessel propelled by machinery whether or not the machinery is the principal source of propulsion. Also effective January 1, 1998, the definition of a "dealer" under the Virginia Boating Laws is expanded.

Code of Virginia § 58.1-1402 imposes the Watercraft Sales and Use Tax (Watercraft Tax) on the sale of watercraft sold in Virginia or the use of watercraft in Virginia. The rate of the tax is 2% with a maximum tax of $2,000. Boats and vessels subject to the Watercraft Tax are not subject to the 4.5% Retail Sales and Use Tax (Retail Tax).

Prior Rule (before January 1, 1998): Prior to January 1, 1998 a “watercraft” was defined as: (1) a boat 15 feet or more in length powered by a motor in excess of 25 horsepower, and (2) a sailboat in excess of 18 feet in length. Any motor used to power a watercraft, and sold separately from the watercraft, is itself deemed a watercraft. See Virginia Tax Bulletin 94-9. Vessels which have a valid marine titling document issued by the United States Coast Guard are specifically excluded from the definition of "watercraft."

Changes in the Law (effective January 1, 1998): Effective January 1, 1998, the definition of"watercraft" is expanded to include any vessel propelled by machinery, whether or not the machinery is the principal source of propulsion. This change eliminates the size restrictions of the vessel and the horsepower requirement of the motor to include any vessel propelled by machinery. This includes small motorboats (jon boats for example), personal watercraft (such as jet skis), and small sailboats equipped with auxiliary motors.

Sailboats longer than 18 feet in length continue to be defined as "watercraft" and are not affected by this change. Also, the definition of "watercraft" continues to exclude: (1) vessels which have a valid marine titling document issued by the United States Coast Guard, and (2) canoes, kayaks, row boats, small sailboats (under 18 feet in length) and other non-motorized boats.

Taxation of Watercraft: Vessels not meeting the definition of "watercraft" are taxed at the Retail Tax rate of 4.5%. Such vessels include, until January 1, 1998, small motorboats and jet skis. Effective January 1, 1998, small motorboats and jet skis will be subject to the 2% Watercraft Tax. All boat motors will also be taxed at the 2% Watercraft Tax rate.

The 2% Watercraft Tax also applies to the gross receipts from the lease, charter, or rental of watercraft, including small motorboats and jet skis effective January 1, 1998. This tax is imposed on the registered watercraft dealer, and includes the hourly rental, maintenance, and generally all other charges. Registered watercraft dealers may purchase watercraft exempt of the Watercraft Tax for subsequent lease or rental.

Titling Requirements of Watercraft: Effective January 1, 1998, no new owner may operate a watercraft in Virginia waters until application has been made to the Department of Game and Inland Fisheries (DGIF) for a "Certificate of Title" and a "Certificate of Number" (Registration). Also, all watercraft currently registered in Virginia with a registration expiring after January 1, 1998, must be issued a "Certificate of Title" at the time of renewal of the Virginia registration. Effective January 1, 1998, small motorboats and jet skis will require titling by DGIF.

DGIF will not issue a title unless the Watercraft Tax has been paid. The Watercraft Tax may be paid: (1) to the dealer provided that the dealer has agreed with the Department of Taxation (TAX) to collect and remit the 2% Watercraft Tax; (2) directly to TAX; or (3) directly to DGIF at the time the watercraft is titled.

Owners of small motorboats and jet skis purchased before January 1, 1998 (and thus subject to the 4.5% Retail Tax) will not be required to pay the 2% Watercraft Tax in order to get a title from DGIF.

Watercraft Dealers: Many dealers who sell small motorboats, jet skis, and boat motors have already registered with TAX and entered into agreements with TAX to collect and remit the 2% Watercraft Tax on behalf of their customers. These watercraft dealers are instructed to charge and collect the 2% Watercraft Tax on these items effective January 1, 1998.

As a service to their customers, all dealers selling watercraft are encouraged to register with TAX and agree to collect and remit the 2% Watercraft Tax on behalf of their customers. Dealers who do not agree to collect and remit the 2% Watercraft Tax may charge and collect the 4.5% Retail Tax on their sales of small motorboats, jet skis, and boat motors. The 2.5% difference (between the 4.5% Retail Tax and 2% Watercraft Tax) will be refunded to the customer by TAX, as follows:

- Small motor boats and jet skis: DGIF will notify TAX when the customer applies to DGIF for a watercraft title. TAX will use the purchase documents forwarded by DGIF (verifying that the 4.5% Retail Tax has been paid) to calculate and refund the 2.5% tax difference directly to the customer.

- Boat motors: Boat motors sold separately from the watercraft are not subject to titling requirements. Customers who pay the 4.5% Retail Tax on purchases of boat motors after January 1, 1998, are asked to contact TAX to apply for the partial refund.

Effective January 1, 1998, a "dealer" for Watercraft Tax purposes means a "watercraft dealer" who sells, offers to sell, displays or permits the display for sale, of two or more watercraft, within any twelve consecutive months as defined in Code of Virginia § 29.1 -801 of the Watercraft Dealer Licensing Act.

For additional information, please contact the Department of Taxation at (804) 367-8037 or write to the Department of Taxation, Watercraft Tax, P.O. Box 2185, Richmond, Virginia 23218-2185.

Questions concerning titling of watercraft and licensing requirements of the Watercraft Dealer Licensing Act should be directed to the Dealer Section of the Department of Game and Inland Fisheries at (804) 367-1011.

Rulings of the Tax Commissioner