resale. Even if the Board determined that the seller made a "good faith" effort to verify the buyer’s representation and the seller was not liable to collect the tax, it doesn’t preclude the Board from assessing use tax on the buyer if very specific conditions are not met. In the opinion of the Board, if the buyer converts the vessel to any use other than being held for resale, it can’t be considered to be "being held for resale." The conditions of their ability to assess use tax on the vessel purchase are very specifically written out.

C. Another example would be where the buyer actually takes delivery of the vessel outside of California. Following the advice of "parking it" for 90 days (note 1) he pays dock fees and leaves it out of state. Subsequent to the 90 days (note 1) the buyer sails the vessel into California and begins using it. The Board will find this transaction to be taxable.

The previous examples are just a few cases where the taxpayers followed their available advice. They were all assessed tax. The public records are filled with many instances of vessel purchases that have resulted in a tax liability. The sad part is that in many cases a proper strategy would have resulted in a non-taxable event. Considering the price of watercraft, this can save the buyer hundreds of thousands of dollars. What is more important, a dealer that can provide the proper tax strategy to his customers as part of his "value-added service" has a significant price advantage. The one who "knows it all" can put himself and the purchaser in jeopardy.

There are a few experts who know the law as it relates to purchases of vehicles, vessels and aircraft. If you follow the steps exactly as they lay them out, you have a chance of saving all or some part of the tax. If you think you know the law, or if you try to use someone else’s strategy that worked for their case you could be in for a shock. Each transaction lives or dies on its own merits. Only careful analysis can save you.

The mistake that is very common to all taxpayers is not knowing the depth to which a tax agency can create "loopholes" for them to collect taxes. Most tax collection agencies view their mission as "collect revenue from every imaginable source." Some agencies promote personnel based on collection statistics. The Senate hearings into IRS tactics has made this clear.

Armed with this basic knowledge, the aforementioned examples illustrate the depths to which the Board of Equalization of the State of California will go to collect money. The good news is that in order to justify their collections all agencies must create a very rigid set of policies, manuals and reliance on previous decisions. Their "methods of attack" create the best possible defense. In their desire to define exactly the guidelines that must be met, they inadvertently give the taxpayer the method to develop a defensible tax strategy.

The Supreme Court declared that it is the duty of all taxpayers to aggressively pursue methods of avoiding taxes. However, misapplying rules isn’t a defense. The Justices merely supported your right to avoid taxes. It is illegal to evade taxes. They let you know that if you bother understanding the rules you can "avoid" taxes. "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted." SUPREME COURT OF THE UNITED STATES, GREGORY v. HELVERING 293 U.S. 465;

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." --Federal Appellate Judge Learned Hand

(note 1)
Effective October 1, 2004 the test period has been extended from 90 days to 12 months

Thomas A. Alston is the president of Aero & Marine Tax Professionals (www.aeromarinetaxpros.com). He has successfully filed hundreds of tax returns with the California State Board of Equalization. Mr. Alston is California's premier specialist in legitimate tax avoidance on aircraft, vessels and vehicles, having published many articles on sales and use tax.

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