Boat sales up since Connecticut lowered tax
In the first seven years after the Great Recession, Rick Dieterich found that his Mystic business, Springline Yacht Sales, was struggling. But things started looking up in 2016, and then in 2018 he did a record $3.6 million worth of sales.
With 2019 not even half over, he has done $3.9 million in sales and expects another $600,000 or so in the remaining months, most of which are "pretty dead" for sales.
He said the average sale is in the $400,000 range but called them "working people's boats," for which buyers typically take out a 20-year mortgage — as if they're paying for a second home.
Dieterich notes there are "probably a multitude of factors involved" in the success of the past year or two, but he attributes part of it to the Connecticut General Assembly lowering the boat tax last year. Effective July 1, 2018, the sales tax on boats, boat engines and boat trailers went from 6.35 percent to 2.99 percent.
The rationale was to better compete with Rhode Island, which does not charge any sales tax on boat purchases. In New York, the combined county and state sales taxes means total sales taxes range from 7 percent to 8.875 percent, but only the first $230,000 of a boat's price is taxable.
Kathleen Burns, executive director of the Connecticut Marine Trades Association, said the organization had been working for four years to get the tax lowered.
The budget proposal Gov. Ned Lamont introduced in February would revert the tax to 6.35 percent, whereas the Finance, Revenue and Bonding Committee revenue bill would keep it at 2.99 percent. Sen. Heather Somers, R-Groton, a passionate advocate for lowering the boat tax, called this a "very wise and thoughtful decision" on the part of the committee, but she doesn't know what the final budget will look like.
Local boat dealers see positive impact of lower tax
Between the February proposal and the committee's favorable report on its alternative in May was a public hearing on Senate Bill 877, a bill of revenue items to implement the budget. It was a wide-ranging hearing, with massage therapists, architects, accountants and more testifying to how additional taxes would hurt their industries.
Buried among the hours of testimony on March 15 were several people urging the retention of the 2.99 percent boat sales tax rate.
Burns said average boat sales were up 41 percent per month, marinas reported an occupancy rate increase from 65 to 78 percent, and 85 percent of all dealers hired additional full-time personnel since July 2018.
She also noted the winter season was up 8 percent over previous years, and "winter storage is the driver for off-season work, labor and parts that keeps the workforce employed year-round, avoiding layoffs and unemployment claims."
Tasha Cusson of the Westbrook new and used boat dealer Atlantic Outboard said her company invested more than $1 million in the business in the past year, something it wouldn't have done if employees thought the sales tax reduction was temporary.
Both Ron Helbig and Alexa Kangley of Noank Village Boatyard in Groton said if the boat tax is raised again, customers will go to other states — and so will marine industry jobs.
"When we lose boat sales and boat slips to neighboring states, we also (lose) tax revenue from restaurants, hotels, spas, entertainment venues, and more," wrote Kate Mosley, marina manager of Saybrook Point Marina. "Raising occupancy and boat sales taxes will drive tourists and jobs out of the state, resulting in the overall LOSS of tax revenue."
While Dieterich didn't submit written testimony, he said he was at the Capitol wearing his "Don't sink an industry" T-shirt. Asked about the local legislators who advocated for lowering the boat tax, Dieterich cited Somers, former Sen. Andrew Maynard and Rep. Joe de la Cruz, D-Groton.
Somers wanted the boat tax to be eliminated entirely, to be on a level playing field with Rhode Island, but 2.99 percent was the compromise. She said someone wrote her a thank-you note because he could finally afford a boat for his family. Somers stressed that many boat sales are "not mega-yachts" but ones costing about $20,000.
Don MacKenzie, president of Boats Incorporated in East Lyme, told The Day last week his company grew from 25 full-time employees last May to 29 now, and that his marina is full — a type of growth he hasn't seen in years.
"It has been so tough competing with Rhode Island," he said in a written message. "The lower rate has first and foremost kept CT customers in our state, and for those customers that may have been sitting on the fence, they are now buying. Not just has the boating industry benefitted, but so many local businesses have benefitted as well."
The owners of Reynolds' Boats in Lyme and the regional brokerage Brewer Yacht Sales also told The Day they've seen a positive impact on boat sales from the lower sales tax.
It's difficult to measure the extent to which the lower tax is having a multiplier effect on others in marine industries. The general manager of Norwest Marine, which offers dock slips and Yamaha parts in Pawcatuck, said he hasn't seen an impact. The owner of Dodson Boatyard, a service yard in Stonington Borough, said he hasn't felt any impact from the lower boat tax.
How has the lower rate impacted tax revenue?
Through a Freedom of Information Act request to the state Department of Revenue Services, The Day obtained monthly sales and use tax due on boat dealers from January 2009 through February 2019.
Though the tax rate was cut in more than half effective July 1, 2018, the data shows that tax revenue increased from $412,738 in July 2017 to $476,985 in July 2018.
But from August 2017 to August 2018, the revenue decreased by nearly 62 percent. For every month since, revenue was down over the same month in the year prior, but by well under 50 percent. Overall, tax collections were $2.1 million from July 2017 through February 2018, and $1.6 million from July 2018 through February 2019.
In her written testimony in March, however, Kathleen Burns of CMTA showed charts indicating the year-over-year tax revenue increased for each month from September through January. Burns told The Day that because the state only had figures up to August 2018 at that point, she used information dealers reported to CMTA on boat sales. She said another complicating factor is uncollectible tax when someone goes out of state.
"I'm very, very positive that as we play out a full year of this, we'll see the numbers all aligning," Burns said.
The state data does back up her point that boat tax revenue is usually at its highest in May, so time will tell how this May compares to last May. Brewer Yacht Sales owner Hal Brewer also noted that because of the bad weather this spring, business is not where it was a year ago.
Somers' attitude is that one must look at the impact of the lower boat tax on revenue over a longer period of time. She remembers saying last year, "Give us five years at this rate, and we will show you increased revenue."
The nonpartisan Office of Fiscal Analysis last year projected the lower boat tax rate would result in a revenue loss of $2.3 million to the General Fund and $200,000 to the Special Transportation Fund.
The Department of Revenue Services data shows the sales tax on boat dealers brought in $4.4 million for the fiscal year ending June 30, 2018. It does not look like the revenue loss this fiscal year will be nearly as great as OFA projected, as that would mean only $310,000 in taxes for March-June. This seems unlikely for the industry's busiest third of the year.
The governor's office projected that restoring the boat tax to 6.35 percent would result in a gain of $2.3 million to the General Fund for each of the next two fiscal years. Two spokespeople in the governor's office did not respond to requests for comment on this number.
The boat tax revenue alone does not show what impact the lower rate has on income taxes, considering many dealers and marinas say the tax decrease has led them to hire more people, or on fuel taxes. Burns wrote in her submitted testimony that the average marine industry company pays more than $90,000 in payroll taxes, up about 14 percent from 2017.
According to the 2017 Boating Division Report from the state Department of Energy and Environmental Protection, the number of vessel registrations in Connecticut has been falling every year for the past decade, dropping from a high of 112,319 in 2007 to 94,691 in 2017, lower than at any point in the past 30 years.
Burns attributes this to the Great Recession, Superstorm Sandy and Hurricane Irene.
Jim Turowsky, general manager of Norwest Marine, said one struggle is that younger people aren't getting into boating as much anymore.
"Even if they grew up boating, if they haven't had a boat that was left to them by their parents, whatever, they're just not getting into it anymore," he said.
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