No Repair Tax on Aircraft; Why Boats & Yachts? January 15, 2015
Two years ago, Florida updated one of its tax laws to exempt replacement engines, parts, equipment and labor used in or for the maintenance or repair of fixed wing or rotary wing aircraft (helicopters) with a certified maximum takeoff weight of more than 2,000 pounds. The earlier law exempted repairs on aircraft weighing more than 10,000 pounds. Since then, Florida has become the go-to state in the region for aircraft repairs in this broadened weight range, which now includes most small, privately owned aircraft. The Florida Aviation Business Association, a trade group similar to MIASF, helped guide the change through the state legislative process.
Gaining a similar exemption for repairs on boats and yachts is now on the legislative agenda for MIASF. For starters, to attract and maintain a competitive edge in the service sector, the marine industry will seek a cap on sales tax on service charges over $600,000. Sales tax caps have already proven successful. In 2010 a cap was passed limiting boat sales tax – in Florida it’s 6 percent — to the first $300,000, or $18,000. The Florida legislature’s decision to place a sales and use tax cap generated in excess of $13.46 million in sales tax revenue to the state from new business, compared to the Department of Revenue analysis, which projected a $1.5 million loss during the first year of implementation, according to a Thomas Murray and Associates report.
The initial marine industry response may be to ask why boat and yacht owners are singled out. But the bigger question is, of course, if the marine industry can gain fairer tax treatment, like aviation, will it make the repair and refit business in southeast Florida and statewide more competitive? And that answer is likely to be yes.
The timing to address the issue is prime, says MIASF Executive Director Phil Purcell, who points to the large number of yachts built from 1990-2010 that are ready for upgrades such as new engines, generators, paint, LED lighting, communications and electronics and generalized refits. Tied to the growing reputation of the region as marine hub to the world, more refits should accrue not only from North America, but globally as well. “This will drive business to our community and ensure money and jobs remain here in South Florida instead of somewhere else,” he says.
It worked for aviation. Neighboring states Georgia and Alabama were cited in a FABA article as keeping the status quo on taxes for aircraft repairs and suffering the consequences. Among other examples was a maintenance update costing $100,000 for a Falcon 900 resulting in $6,000 savings when the job was done in Florida, easily worth the trip.
Consider a 150-foot vessel undergoing an interior refurbishment, which can cost from $200,000 to more than $1,000,000. A typical 12-week job at a boatyard in the region could cost $2 million to $3 million for a vessel requiring major work. With Florida’s current 6 percent uncapped sales tax, the cost is $60,000 to $150,000 or more. With a $600,000 cap, the sales tax in Broward County would be capped at $36,000.
The marine industry should expect similar results to aviation. As FABA notes: “The sales tax exemption is highly advantageous to the aviation business in Florida, which has one of the largest aviation markets in the country and one of the best destinations for travel and business throughout the year … Businesses collect taxes, but they provide much more than that. They create employment, support communities and provide the energy to keep the state and national economies progressing and developing.”