In the early 1990s, the U.S. Congress enacted a new law that taxed “luxury” items 10 percent. This was a big deal, since automobiles priced more than $30,000, boats more than $100,000, jewelry more than $10,000 and aircraft priced more than $250,000 were all targeted in the effort to enrich the government coffers.
So, why would you think this is a bad idea? Heck, when your talking about the people who are actually buying these luxury items, they certainly wouldn’t mind paying a bit more for these items would they? They are rich ya know, they can afford it. Tell that to the employees that were actually making these boats in Florida or selling these cars in New York.
You should be able to guess what happened, the rich-folk continued to buy these luxury items, but not nearly at the same pace as before. First year tax revenue estimates fell about $100 million short of what was expected and within a year, the “luxury” industry employees were taking the hit. I can name off about three or four yacht manufactures – including Irwin Yachts – that flat out closed up shop. Layoffs, layoffs and more layoffs almost destroyed the yachting industry in the U.S. by 1995.
I guess the guys and girls who were laying the fiberglass hulls didn’t much matter to the government. But the rich-folk just ended up spending their cash elsewhere; buying new homes out of the country and having boats built in Europe, never to see the shores of the U.S.A.
Now, states are looking to tax owners of private aircraft and yachts that visit their state for short periods of time. From the New York Sun:
“I couldn’t believe it,” a Bedford, Mass., resident and pilot who got a bill from the Pine Tree State [Maine] last year for more than $25,000, Stephen Kahn, said. “I thought it was absurd, invidious, and totally made you not want to go to Maine.”
Mr. Kahn, who works in venture capital, said he bought his four-seat, single-engine Cirrus SR22 in 2002 and quickly began using it for weekend visits to a home he built on family property alongside a lake in Camden, Maine.
“On a good day, you could drive there in four hours. During the summer, it can be five or six, depending on traffic,” he said. He now makes the same trip, from Hanscom Field near Boston to an airport in Rockland, Maine, in an hour or less.
“Having an airplane and being able to fly up there made all the difference to me,” Mr. Kahn said.
About a year ago, Maine’s tax department sent him a letter demanding about $17,500 in tax plus $8,000 in interest. The authorities said they determined that his plane was in Maine for more than 20 days in 2003 and therefore was subject to a “use tax,” similar to a sales tax, of 5% of the plane’s full purchase price, estimated at $350,000.
Mr. Kahn could have claimed a credit for sales tax paid elsewhere, but he did not owe any because Massachusetts, like many other states, does not tax the purchase of aircraft.
Word of Maine’s bills spread quickly among pilots and left many vowing to scuttle their trips down east. “I know of half a dozen pilots who have canceled their vacations to Maine and are going to some other state where they feel welcome,” Mr. Kahn said. “It’s definitely going to hurt their business.”
If I was Mr. Kahn, I sell my place in Maine and never go back. If more states start this crap, the general aviation and boat building industries and take another hit. The people who will pay for this will be those lower and middle class workers who build the aircraft and boats. I’m certain it won’t help Maine’s tourist industry either.
I’m certain the folks at Cirrus in Duluth will really appreciate that.