PORTLAND, Maine — A retired Maine businessman thought he was helping the local economy in 2005 when he spent more than $100,000 in Portland on repairs to his 72-foot luxury yacht, newly purchased in Florida. Now he’s feeling cheated.
More than a year later, Tom Toye III received a $60,000 bill from Maine Revenue Services for “use taxes” on the boat.
Toye appealed and later sued the state tax assessor, claiming the vessel shouldn’t be taxed in Maine. Last week, he lost his case in Maine Superior Court. With interest and penalties accruing, he says the bill has grown to about $120,000.
“I’m just infuriated about the whole thing,” said Toye, who is considering an appeal to the Maine Supreme Judicial Court. Maine Revenue Services says boat owners must pay a use tax of up to 5 percent if they bought their boat in another state that doesn’t require sales taxes for boats, brought it into Maine within the first year of ownership, and had it available to use for at least 30 days.
Aircraft owners complain that Maine sends out similar tax bills — sometimes exceeding $100,000 — on their planes. The judge in Toye’s case also ruled in favor of the state on two cases involving aircraft owners.
Maine Revenue Services says it’s simply doing its job: collecting taxes.
But critics claim the tax and the strict enforcement are having a chilling effect on boaters and discouraging tourism at a time when the state’s economy needs help.
Some out-of-state boaters are steering clear of Maine’s rocky coast and picturesque harbors, which in turn hurts local grocery stores, restaurants, repair yards and other businesses that benefit from boaters, said Micah Peabody, general manager of Dysart’s Great Harbor Marina in Southwest Harbor.
“Word is starting to spread that Maine is unfriendly to yachtsmen,” Peabody said.
There have been reports of tax agents in rowboats photographing visiting boats. Peabody says 10 or 12 boats have stayed away from his marina alone in the past couple of years for fear of getting huge tax bills.
About three or four years ago, the state began cracking down on boat owners. Tax officials examined marina records, talked to harbor masters and dispatched agents to harbors to take notes and photographs of out-of-state boats, said Errol Dearborn, director of compliance for Maine Revenue Services.
While the stepped-up enforcement coincides with a sour economy and weak tax collections, officials say it is not tied to the recession.
“It’s an equity thing,” Dearborn insisted. “We enforce the law, and the law is to protect Maine businesses that do sell watercraft.”
Use taxes are substitute sales taxes collected on virtually anything — boats, planes, cars, snowmobiles, even books on the Internet — bought in states where sales taxes aren’t assessed and brought to Maine to be used. In fiscal year 2009, the state collected $75.8 million in use taxes; how much came from boat levies isn’t known because the state doesn’t break the use taxes down by category, said Jerome Gerard, the Maine tax assessor.
Other states that have sales taxes also impose use taxes. But laws and enforcement vary on boat purchases, said Margaret Podlich of the Boat Owners Association of the United States, a 500,000-member organization based in Alexandria, Va.
BOATUS has heard members complain recently about increased collection efforts on all types of taxes in New York, Maryland and North Carolina, she said.
“The bottom line is, states are trying to ensure you’re paying taxes,” she said. “We’re definitely seeing a trend that the states are being more vigilant about tracking visiting boaters and figuring out who is triggering these time limits and taxing them.”
Toye, with homes in Cape Elizabeth and Miami Beach, Fla., purchased his boat in December 2004, renamed it October Princess and brought it to Maine in May 2005. He kept the vessel at a marina in South Portland and it underwent renovations at a Portland shipyard.
The boat was in Maine for nearly five months before Toye took it south that October. Months later, the state of Maine delivered Toye the surprise tax bill for nearly $60,000.
In his suit, Toye claimed his boat wasn’t in Maine for recreational cruising, but for repairs. The state said the boat sat at the marina most of the time and that Toye twice took it for trips up the coast — trips Toye says were sea trials to test the boat’s repairs.
Other boat owners have had similar shocks.
Jim McHutchinson, of St. Michaels, Md., bought a 36-foot powerboat in 2007 and brought it to Maine for several weeks that summer. When he went home at season’s end, he left the 18-year-old boat in a Southwest Harbor marina on Mount Desert Island.
His use tax levy and penalties: $11,000.
McHutchinson thinks he was unfairly targeted by Maine tax officials. He points out that the law says a boat can be taxed if it was available for use in Maine for more than 30 days, but says he was in Maine for only 27 days — even if his boat was here for longer.
“I think it’s zeroing in on visitors to Maine and trying to cure, in small steps, some of the financial problems the state has by picking on people who have assets that are movable and trapping them in Maine,” he said.
Aircraft owners complain about similar tax bills — sometimes exceeding $100,000 — on their planes.
Jon Block, a Portland tax attorney, plans to appeal last week’s two aircraft cases to the Maine Supreme Judicial Court. Block thinks the aircraft cases will have a bearing on boat owners even if Toye doesn’t appeal his case.
“I think they’re all going to rise or fall with the aircraft cases that are being appealed,” Block said. “They all hinge on the same arguments.”