Would Lowering Tax on Boat Sales in NJ Turn Tide for Struggling Industry?

Critics say it would mostly benefit the affluent while advocates say it would boost marinas, repair shops and other maritime-related businesses

yacht sailboat
This year’s summer boating and fishing season may be over, but industry advocates are hoping a bipartisan push to offer new tax breaks on boat purchases in New Jersey remains a top concern for state lawmakers this fall.

The state Senate last week voted overwhelmingly in favor of a bill that would set a maximum amount for sales taxes on boats or yachts purchased in New Jersey while reducing the sales tax for all boat sales here by 50 percent.

The bill incorporates advanced by both Democrats who control the Legislature and Gov. Chris Christie, a second-term Republican. It has the support of the state’s boating industry, as well, but critics say it will help the rich more than anyone else.

Christie has roundly criticized Democratic legislative leaders in New Jersey while on the campaign trail this year as he seeks the GOP’s 2016 presidential nomination, but the two sides have been raising similar concerns about a New Jersey boating industry that’s been hit hard in recent years by an economic recession, Superstorm Sandy and competition from other Atlantic seaboard states that have been battling to offer the most generous tax breaks on boat and yacht sales.

The measure currently before New Jersey lawmakers is the product of a bill they originally approved in June that was sent back to them by Christie in the form of a conditional veto issued in August.

The newest version, which includes Christie’s recommendations, would cap at $20,000 the maximum amount of sales tax that New Jersey could levy on a boat or yacht sold here. It would also cut to 3.5 percent the sales tax rate on all boats purchased here.

Melissa Danko, executive director of the Marine Trades Association of New Jersey, said the bill is “desperately needed to support our struggling industry.” Boat registrations, she said, have fallen by nearly 100,000 since 2001.

“Tax caps like these encourage buyers to stay in-state to make their purchases; whether high-, mid- or low-dollar. This also increases the likelihood that maintenance and repairs will also stay local,” Danko said. “The jobs preserved and created are those of sales representatives, production workers, dock operators, mechanics and more.”

But critics of the measure complain that the tax breaks will go to people with the means to buy the most expensive boats. And they say the lost revenue will come at the expense of a state budget that is already shorting investments in education, transportation and public-employee retirements, among other priorities, they say.

“This silly tax break – designed to benefit a very few at the expense of the rest of us — is a step in the wrong direction,” said Gordon MacInnes, president of the liberal think tank New Jersey Policy Perspective after the Senate voted last week.

Another vote is still needed in the Senate, but given the ease of last week’s approval — only one senator voted against the current version of the bill — all eyes have turned now to the Assembly. And consideration of the tax breaks comes as all 80 Assembly seats are up for grabs in November, with Republicans aggressively seeking their first majority in roughly a decade.

An earlier version of the bill that only featured the $20,000 sales-tax cap passed the Assembly by a 66-4 margin in June. But that was before Christie issued his conditional veto, which kept the $20,000 cap, but also proposed the across-the-board reduction of the sales tax on all boat purchases. It was that change that the Senate gave approved last week.

When asked about the fate of the new version of the bill in the Assembly, a spokesman for Assembly Speaker Vincent Prieto (D-Hudson) said yesterday that Prieto “plans to review the conditional veto and talk to sponsors.”

Assembly Minority Leader Jon Bramnick (R-Union) was more supportive. He noted Assemblyman Sam Fiocchi (R-Cumberland) proposed the exact same change that Christie wrote into the conditional veto on the Assembly floor in June, only to see Democrats shoot it down.

“I support middle-class tax cuts, and the change proposed by (Fiocchi) provides a boat-tax discount to the middle class,” Bramnick said. “It’s good for consumers and our economy, and the Assembly should approve it as soon as possible.”

It’s not clear how much a halving of the state sales tax for boat purchases would impact the state budget, which totals $33.8 billion.

Nonpartisan legislative analysts have estimated the state collects about $10.5 million in annual revenue from boat sales, and they predicted the original version of the bill with the $20,000 cap would likely cost the state between $1 million and $2 million in lost revenue. They also said the state could conceivably collect more revenue if the cap encourages more sales of higher-priced boats.

A new estimate has yet to be prepared in the wake of Christie’s conditional veto.

New Jersey Policy Perspective has estimated the changes could cost New Jersey more than $5 million in annual revenue, while also giving someone buying a $10,000 boat a $350 tax break compared to the $35,000 tax break that someone purchasing a $1 million boat would enjoy.

But Danko, from the Marine Trades Association, said the bigger issue is the need to support the state’s recreational boating industry.

“This is not about tax breaks for the wealthy, as many have claimed,” she said. “The reality is that local manufacturers, dealers, marinas and repair shops will see the greatest economic benefits.”