SALT Report 3010 – The New York Division of Tax Appeals issued a ruling regarding whether the Division of Taxation properly assessed use tax on a boat purchased out of state. In this case, the Division conducted an audit of the Taxpayer because it was unable to verify any payment of sales tax when the boat was first purchased, or use tax when the boat was first used in New York.
The auditor requested a copy of the bill of sale and proof that the Taxpayer had paid sales tax. The Taxpayer provided two documents; one indicated that the boat was purchased in Florida in 2004, and the other indicated that the boat was registered to a California address. However, the auditor conducted a property search that revealed that the Taxpayer and his wife have owned a home in New York since August 1987, and that they have registered two other boats to that New York address.
Because of this the auditor issued a Statement of Proposed Audit Change for Sales and Use Tax indicating that tax was due in the amount of $8,040.00 plus penalties and interest for the purchase or use of the boat dated back to February 9, 2004.
The Taxpayer filed an appeal arguing that the boat was exempt from use tax because it was used as a commercial charter. To support his argument, the Taxpayer stated that the boat was registered with the US Coast Guard and was inspected for use as a charter. Also, the Taxpayer claimed that he hired a captain to operate the boat since the Taxpayer did not hold a captain’s license. Finally, the Taxpayer provided evidence that he had a web site indicating that the boat was available for charter.
Upon review of the case, the Administrative Law Judge stated that Tax Law § 1115(a)(8) provides an exemption from sales and use taxes for, “commercial vessels primarily engaged in interstate or foreign commerce and property used by or purchased for the use of such vessels for fuel, provisions, supplies, maintenance and repairs, other than articles purchased for the original equipping of a new ship.” As a condition of the exemption, the commercial charter must be primarily engaged in interstate or foreign commerce at least 50% of the time.
However, based on the evidence provided by the Taxpayer, the boat entered New York in 2005 and has remained in the State ever since. Although the Taxpayer submitted some evidence indicating that the boat was involved in charter activities from 2006 through 2012, the Judge was unable to determine the percentage of the receipts derived from “transporting passengers in interstate or foreign commerce.” Also, the income documentation submitted by the Taxpayer only included a summary of income and expenses for a 6-month period in 2006 and two schedule Cs for 2010 and 2011. These documents did not include any supporting source records.
Ultimately, the ALJ determined that the Taxpayer failed to properly report the use of the boat. Moreover, the Taxpayer failed to retain and present records that could identify either the boat’s charter activities or any amounts paid for the charters, which are necessary to support the Taxpayer’s claim for the exemption as a commercial vessel engaged in interstate or foreign commerce. As a result, the use tax and interest assessment was upheld as well as the penalty for failure to timely file a return or pay tax because the Taxpayer could not establish reasonable cause or the absence of willful neglect.
For Further Information