STONINGTON, Conn. — Boating season hasn’t begun yet and Mason’s Island Marina owner Eileen Morehouse has already felt the ill effects of Gov. Dannel P. Malloy’s proposed increases to marine-related taxes — a move that industry veterans claim will repeat mistakes that proved economically devastating.
A customer recently told Morehouse she was moving her sailboat and Boston Whaler from the Mystic marina to neighboring Rhode Island, about 15 minutes away.
“She’s afraid that so many people are going to be running to Rhode Island,” said Morehouse, who has customers from as far away as Pennsylvania. “If you’re going to travel all the way from Philadelphia, what’s another 6 miles to Rhode Island? We will lose. Connecticut will lose.”
States across the U.S. are embracing increasingly creative ways to bail out budgets mired by years of sinking revenue. But in New England, where boating traditions date back centuries, marine business owners say talk of taxing boaters will cripple an already struggling industry and send boaters looking for better harbors in lower-tax states.
Rhode Island’s marine industry is hardly exuberant about the possibility of higher taxes in Connecticut luring boaters across the border. Boat builders and repair companies are fighting a tax battle of their own, against Gov. Lincoln Chafee’s call to impose a 1 percent sales tax on boat sales and repairs.
For nearly two decades, Rhode Island has enjoyed a reputation as a tax haven for boaters, including U.S. Sen. John Kerry, D-Mass., who made news last year for docking his family’s new $7 million yacht in the Ocean State, allowing him to avoid paying roughly $500,000 in taxes in Massachusetts. Rhode Island removed its tax on boat sales in 1992. Kerry ultimately moved the boat across the border and paid Massachusetts tax.
Now those in Rhode Island’s marine industry are afraid business won’t come back if the state begins taxing again.
Boat company executive Peter Van Lancker said he understands that the state doesn’t have any good options for resolving its budget crisis and that Chafee’s tax proposals would affect other industries, too. But he said Rhode Island’s reputation as a boater’s paradise could be on the line.
“I can understand where he’s coming from, wanting to tax something,” said Van Lancker, president of Hunt Yachts, a Portsmouth, R.I., boat builder. “I wouldn’t want to be in his position. But the industry is fragile to begin with. He could really damage it.”
Besides Connecticut and Rhode Island, Georgia is also considering slapping a sales tax on boats.
But some states, like Florida, have taken steps to encourage marine-related sales. Florida capped taxes last year. David Dickerson, director of state government relations for the National Marine Manufacturers Association, said Massachusetts is considering a bill that repeals sales tax on boats built or rebuilt in the commonwealth. Michigan is considering applying the state sales tax only on the difference between a trade and the new purchase.
Malloy, who is facing a $3.5 billion budget deficit in Connecticut in the fiscal year that begins July 1, wants to end some longtime sales tax exemptions on winter storage fees, repair and maintenance, and the value of a trade-in.
He’s also proposed a 3 percent luxury tax — making Connecticut the only state to have one if it passes — on the value of boats $100,000 and above, and an increased sales tax affecting boating services, a 3-cent increase in the gasoline tax, and a property tax on boats, something Connecticut scrapped in 1981.
“We understand the concerns of the boat and marina owners, but this budget was based on a balanced approach of ‘shared sacrifice’ and boat owners should be part of the solution, too,” said Gian-Carl Casa, Malloy’s undersecretary for legislative affairs. “Connecticut needs to get back on sound financial footing.”
Connecticut’s boating industry has seen employment drop from 12,000 before the recession to 4,500 today. The latest industry survey in Rhode Island found more than 6,000 workers employed in marine trades in 2007. Business owners say that number has likely decreased sharply since the downturn hit.
“A lot of us are small mom-and-pop businesses,” said Lauren Nicholson, who started Nicholson Marine Services in 2004 in Warwick, R.I., with her husband, Drew. “They’re going to be hurt, and the losses our industry will suffer will far outweigh whatever tax dollars they can raise.”
Already, businesses are putting off expansion plans because of the proposed tax changes.
Dann Lockwood is general manager at Dodson Boatyard in Stonington. His company, which specializes in high-end sailboats, has decided to postpone plans to build a fourth winter storage facility and hire five to eight more employees. He expects boats to set sail to friendlier harbors if the tax increase passes.
“Boats can travel,” Lockwood said. “Even if you’re a very wealthy person, if you can save $1,000, $2,000 a year, why not?”
Klepper reported from Portsmouth, R.I.