Bill Lowering Sales Tax on Boat Purchases Awaits Governor’s Signature

While supporters contend lower rates in other states have hurt state’s boat industry, foes argue tax break benefits only the wealthy

If a new boat or even a yacht is on your holiday shopping list this year you may want to wait a bit longer before making that purchase.

That’s because leaders in Trenton are on the verge of cutting in half the state sales tax levied on boats purchased in New Jersey, as well as setting a maximum amount for how much sales tax can be collected for a noncommercial boat or yacht purchased here.

Action from Gov. Chris Christie on those two policy changes — which he’s previously supported — could come at any time.

The timing is important because the language in the bill that lawmakers sent to Christie for final consideration last week calls for the sales-tax reductions to go into effect on the first day of the second month following his approval, meaning early 2016 if the governor takes action sometime this month.

Sinking sales

The tax-policy changes for boat purchases have been proposed as a way to help a local boating industry still struggling to recover from the last recession and Superstorm Sandy.

Industry experts say boat registrations have fallen by nearly 100,000 in New Jersey since 2001, and lawmakers have blamed tax reductions in other states that have left New Jersey at a competitive disadvantage.

But liberal groups and others opposed to the proposal say the wealthy would benefit the most from the sales-tax reductions while the state loses much-needed tax revenue.

The measure, meanwhile, also represents a rare moment of bipartisan agreement this year between the Democrats who control the state Legislature and Christie. And even as Democrats in the Assembly tried last week to muster up the the first override of a gubernatorial veto in nearly two decades – falling short by a few votes of bypassing Christie’s rejection of a mental-health gun bill – lawmakers from both parties voted unanimously that same day to sign off on the sales-tax reductions for boat purchases.

That common ground could be a good sign moving forward as lawmakers are getting ready to work with the governor on what many expect to be a bipartisan plan to renew the state’s Transportation Trust Fund.

Bill also sets cap on tax

The original proposal to cut sales taxes on boat purchases in New Jersey called for a $20,000 cap on the taxes that could be collected on the sale of a noncommercial boat. It won final approval in both the Assembly and Senate in late June.

But Christie, in a conditional veto issued in August, asked lawmakers to also consider cutting the current 7 percent sales tax in half for boat purchases. He also signaled his approval of the $20,000 cap at the same time.

Lawmakers went back to work on the measure in September, with the Senate voting overwhelmingly in favor of Christie’s recommendations. The Assembly — which took a long break this summer as all 80 seats in the lower house were up for grabs in the November election — followed suit last week, voting 64-0-15 in favor of the governor’s changes.

Now, for procedural reasons, the legislation has to go back to Christie one more time for final approval. His office did not say yesterday when the governor is planning to take action.

One of the bill’s primary sponsors, Sen. Jeff Van Drew (D-Cape May) said the policy changes will put New Jersey’s boat-sales taxes back into competition with states like Delaware, Florida, Maryland and Pennsylvania.

“The fact is that we can’t expect to increase sales and expand production of boats in the state if we don’t make our laws and ultimately the final purchasing price more attractive to buyers,” Van Drew said.

Another sponsor, Sen. Jim Whelan (D-Atlantic), predicted the changes will “reignite our state’s boating industry.”

Despite those upbeat predictions, nonpartisan analysts with the Office of Legislative Services estimated that cutting the tax in half will result in state revenue losses of between $8 million and $12.3 million annually during the first few years after it becomes law. The office also projected that the $20,000 will also result in the loss of revenue, although it said that figure couldn’t be accurately calculated.

Gordon MacInnes, president of New Jersey Policy Perspective, a liberal think tank based in Trenton, said the tax breaks make little sense for a state that’s still struggling to come up with enough revenue to fund bigger priorities like transportation, housing and higher education.

The think tank has conducted research indicating the sales-tax reductions would give someone buying a yacht worth $1 million a tax break of $50,000, while someone spending $10,000 would get just $350 in tax relief. The organization also determined the changes would directly impact fewer than 1 percent of the state’s residents.

“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,” MacInnes said.