The South Carolina
Marine Association
1st Annual Winter Marine Education Conference
Newest Tax Rules for Yachts
and Marinas
February 6, 2008
Burnet R. Maybank III
Nexsen Pruet LLC
1230 Main Street
Suite 700
Columbia, SC 29201
(803) 771-8900
bmaybank@nexsenpruet.com
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The property tax rules on yachts and other boats were significantly - - and quietly - changed in the 2006 and 2007 Legislative Sessions. Most of these changes went though very
quietly.
A.
Former Law
While serving as Director of the Department of Revenue, (the first time) I convened a
Blue Ribbon Committee of Boat and Marina owners to study our system of boat taxation. Our
quick study revealed that property taxes on boats were at least twice as high in South Carolina as
any other southeastern state. Our Committee’s study resulted in several actions one of which was
that the Department of Revenue issued a Policy Document (below) which summarizes the
various property tax rules on boats. As discussed, below, notwithstanding that we have taxed
boats, planes, and trucks for decades, the rules were surprisingly vague and as applied to boats
moving in interstate commerce, may have been unconstitutional.
Department of Revenue Rule #98-12 summarizes the (former) property tax rules in the
following relevant categories: (1) pleasure boats; and (2) boats used for commercial purposes. It
then provides rules for boats which are used: (1) solely in South Carolina (intrastate use); or (2)
interstate use. Accordingly, according to the Department of Revenue, the following rules applied
before the 2006 Legislative Session:
(1) A boat used in interstate commerce which is owned by a South Carolina resident
which did not have a tax situs in another state, because it did not have regular physical presence
with that other state, was subject to ad valorem property taxes in South Carolina provided the
boat was located in South Carolina on December 31 of the year prior to the tax year, or was
temporarily out of the state on that date.
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(2) A boat used in interstate commerce owned by a nonresident was subject to ad
valorem taxes in South Carolina if the boat had tax situs through a regular physical presence in
South Carolina, it was physically located in South Carolina on December 31 of the year prior to
the tax year (or was removed from S.C. prior to that date for the purpose of defeating property
taxation), and it did not have tax situs by regular physical presence in any other jurisdiction.
A boat involved in interstate commerce which was owned by a nonresident and which
was located in South Carolina on December 31 of the year prior to the tax year and which has
obtained a tax situs in South Carolina and in at least one other state by regular physical presence,
was not subject to South Carolina ad valorem property taxes since South Carolina did not
apportion property taxes.
(3) A boat involved in interstate commerce which was owned by a South Carolina
resident and which had obtained a tax situs in South Carolina and in at least one other state by
regular physical presence in both states, was not subject to South Carolina ad valorem property
taxes in South Carolina, even if located in the state on December 31 of the year prior to the tax
year, since South Carolinas did not apportion property taxes.
B.
ALJ Cases Under Former Law
There are some five property tax cases involving boats which have gone before our
Administrative Law Judges. In Christophides v. Moseley, the ALJ ruled that a yacht used for
commercial purposes could acquire a tax situs in South Carolina when it spent as little as sixty
(60) days here. However, because the boat was used in interstate commerce, and had also
acquired a tax situs elsewhere its property tax burden in South Carolina should be apportioned.
Because South Carolina had no provision for apportioning property taxes, the ALJ ruled that our
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tax statutes could not constitutionally be applied to the boat and consequently it was not subject
to taxation.
In Erb v. Moseley, the subject recreational boat, which was owned by a non-resident, was
in South Carolina from December 31, 1994 to February 1996. The owner paid taxes on it in
North Carolina. The boat was not used in interstate commerce. The ALJ held under the
December 31st rule that the vessel was subject to taxes in this state notwithstanding that this
would result in double taxation.
In the next case, Young v Mosely, the boat owner was also a North Carolina resident, who
paid taxes on the boat in North Carolina. The recreational boat, which listed Charleston as its
home berth, was outside of South Carolina approximately half of the tax year as it participated in
various regattas. The wily taxpayer moved the boat outside of South Carolina in December in
part to avoid application of the December 31st rule. The ALJ held under these facts that property
of non-residents which is temporarily out of South Carolina on December 31 is not taxable in
this state.
In McCroy v. Colleton County, the pleasure boat was owned by a Delaware corporation
whose sole shareholders (husband and wife) were residents of Colleton County. The vessel was
kept in Florida for six months and in South Carolina for six months each year. It was not in
South Carolina on December 31st. The ALJ first addressed the issue of the residency of the
owner. The auditor argued that the Delaware Corporation was a sham (in part because, like many
closely held corporations, corporate formalities were not closely followed) and therefore the true
owners were South Carolina residents. The ALJ rejected this conclusion because the record
owner of the yacht was a Delaware corporation. Since the ALJ ruled that the owner was a non-
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resident, the issue next concerned whether the vessel was in this state for property tax purposes
in 1996. After noting that a “practical question arises of how does one decide when highly
mobile personal property such as that of an ocean-going vessel is in this state;” the ALJ stated:
“In deciding if property has acquired a definite situs elsewhere than the owner’s domicile, the
general rule is that foreign corporations’ vessels that are utilized either exclusively or for an
indefinite period may acquire a taxable situs in a on-domiciliary state (i.e., South Carolina) but
vessels that are in the state only temporarily do not acquire a taxable situs.”
The ALJ also stated:
At best the vessel is in South Carolina temporarily for the express purpose of
avoiding hurricane season in the state of Florida. Actual situs in South Carolina
requires more than a temporary presence. See Old Dominion S.S. Co. v. Virginia,
198 U.S. 299, 25 S.Ct. 686 (1905) (taxation found property by the nondomiciliary state since the vessels had been continuously and exclusively engaged
in navigation in Virginia’s waters for years). Further, the mere counting of time
between two or more ports used by the vessel is an unreliable means of
determining whether an actual situs has been acquired. See Southern Pac. Co. v.
Commonwealth of Kentucky, 222 U.S. 63, 32 S.Ct. 13 (1911) (A ship is not
intended to stay in port, but to navigate the seas. Its stay in port is a mere incident
of its voyage, and to determine that it has acquired an actual situs in one port
rather than another would involve . . . great uncertainty. . . Thus, since
Therapeutic has only a temporary presence in Colleton County, the County may
not tax the vessel for the 1997 tax year.
C.
Current Law
1.
General
As discussed below, the taxation of yachts was changed dramatically during the 2006 and
2007 Legislative Sessions.
2.
Taxation of Yachts
A new code section provides the missing proration rules referenced several times above.
It states as follows:
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In addition to any other provisions of law subjecting boats and boat motors to
property tax in this State:
(1) A Boat, including its motor if separately taxed, used in interstate commerce
having a tax situs in this state and at least one other state is subject to property tax
in this state. The value of such a boat must be determined based on the fair
market value of the boat multiplied by a fraction representing the number of days
the boat was present in this state by three hundred and sixty five days. A boat
used in interstate commerce must be physically present in this state for thirty days
in the aggregate in a property tax year to become subject to ad valorem taxation.
(2) A boat, including its motor if the motor is separately taxed, which is not
currently taxed in this state and is not used exclusively in interstate commerce, is
subject to property tax in this state if it is present within this state for sixty
consecutive days or for ninety days in the aggregate in a property tax year. Upon
written request by a tax official, the owner must provide documentation or logs
relating to the whereabouts of the boat in question. Failure to produce requested
documents creates a rebuttable presumption that the boat in question is taxable
within the state.
If you charter the vessel and she is not in SC for at least 30 days, you are not liable for
property taxes for the 29 days or less she is here. According to the SCDOR Policy Document,
you did not have to count the time spend in South Carolina in drydock or other repairs. The
General Assembly adopted this rule in 2007. The statute now provides that the time a boat or
boat motor if separately taxed, is located in a South Carolina marina repair facility pursuant to a
written contract for repairs does not count towards the number of days the boat or motor is
present in this state.
If the vessel is not being used “exclusively” in interstate commerce, she may spend up to
60 consecutive days, or 90 days in the aggregate in South Carolina before being subject to
taxation.
This rule, which allows a vessel to spend more time in South Carolina, would
presumably apply to the very common situation where an owner uses a vessel for business and
pleasure. Presumably, this situation imposes taxes for the entire year (not a prorated portion.)
As stated above, the Act does not define “interstate commerce.”
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3.
Boats Taxed as Residence
As previously amended, Code Section 12-37-224 allowed certain motor homes
and, by county ordinance, boats to be treated as real property for purposes of ad valorem
taxation. Under the current amendment, Code Section 12-37-224 provides that, if it qualities for
deduction of the interest expense on a qualified primary or secondary residence pursuant to the
Internal Revenue Code, a motor home, boat or watercraft, or trailer used for camping and
recreational travel that is pulled by a motor vehicle is also primary or secondary residence for
property tax purposes statewide. Requirements for the interest expense deduction under the
Internal Revenue code include on-board sleeping, cooking and toilet facilities.
4.
County Option to Exempt Portion of Value of Boats
Code Section 12-37-220(B)(38), which exempts from property tax watercraft and motors
assessed at $50 or less, has been amended to provide that the governing body of the county by
ordinance may exempt from property tax 42.75% of the fair market value of a watercraft and its
motor, regardless of whether the motor is located in, attached to, or detached from the watercraft.
5.
Access to Marina Records
In order to escape our very high property taxes, many larger yachts are removed from
South Carolina for extended periods. Many smaller yachts (40-60 feet) are moved from marina
to marina particularly during December in order to avoid detection by the County Auditor. Prior
to 2005 Auditors had no explicit powers to inspect marina records to discover (or prove) the
latter. In 2005, the General Assembly granted such powers. The law was amended in 2006 to
read:
A marina must provide immediate access to its business records and premises to
city, county, and state tax authority employees for the purpose of making a
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property tax assessment. For the purposes of this section, ‘marina” means facility
that provides mooring or dry storage for watercraft on a leased or rental basis, and
‘business records’ means only the name and billing address for the person leasing
or renting space for a boat in a marina, as well as the make, model, and year, if
available.
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Burnet R. Maybank, III
Nexsen Pruet, LLC
1230 Main Street, Suite 700
Columbia, SC 29201
W 803.771.8900
F 803.253.8277
bmaybank@nexsenpruet.com
Burnie Maybank is a member in the firm’s banking and finance practice group.
Mr. Maybank's practice focuses on:
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Economic Development incentives
State and Local Tax Controversy Work
Exempt Organizations and Charitable Giving, including Conservation Easements
Alcohol Beverage Control
Regulatory Practice before the Public Service Commission
Mr. Maybank returned to the firm’s Columbia office in 2006 after serving as Director of the South Carolina
Department of Revenue under Governor Mark Sanford from 2003 through 2005. He also served in that
position under Governor David Beasley from 1995 to 1999.
Mr. Maybank was also a Member of the Coordinating Council for Economic Development and Chair of the
Enterprise Zone Subcommittee; Legal Counsel to South Carolina Governor Carroll Campbell;
Commissioner on the SC Public Service Commission; Board of South Carolina’s Department of Health and
Environmental Control; and General Counsel, as well as Deputy South Carolina Securities Commissioner;
in the Secretary of State’s Office.
Education:
 University of North Carolina, B.A.
 University of South Carolina, J.D.
 Emory University, LL.M. in Taxation
Admitted to Practice:
 South Carolina
Awards:
 Order of the Palmetto, the highest civilian awarded by the governor of South Carolina,
from both Governor Carroll Campbell and Governor David Beasley
 Public Servant of the Year Annual Award from Upstate Forever (2005)
 Compleat Lawyer Award from the USC School of Law (1998)
 L.H. "Sonny" Siau Award of Excellence by the South Carolina Association of Auditors,
Treasurers, and Tax Collectors (SCATT)
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