Connecticut Gov. Wants 50% Increase in Boat Sales Tax

Connecticut's new governor, Dan Malloy, wasn't in office more than six weeks when he proposed to raise the state's sales tax on a few luxury items, including boats over $100,000, by 50%. The proposed new luxury sales tax would go to 9% from 6%. Perhaps Gov. Malloy wasn't paying attention when the 1991 federal 10% luxury sales tax on new boats over $100k nearly wiped out the boating industry in the U.S., costing the loss of several hundred thousand jobs. These were jobs which never came back even after repeal! Get this: right next door to Connecticut is Rhode Island which has NO sales tax on boats! Duh...

The 281' yacht Cakewalk was launched last year at the Derecktor Shipyard in Bridgeport, CT, the largest yacht built in the U.S. in 75 years. She cost $82 million to build and employed hundreds of people over the course of her three-year build. If the Gov's tax bill passes another will never be built in the state again.

At one time Connecticut was a state with lots of local boat builders, but over the years, the increase in real estate values and property tax chased most of them out of the state. In the late 1980s there were over 12,000 jobs in the state related directly to the marine industry, mostly in boat yards, boat dealerships, repair services, and related enterprises. But the 1991 federal 10% luxury tax on new boats over $100,000 changed all of that. Ten years later there were only 4,500 marine-related jobs in the state.

It Was Tried Before!

In 1993 the U.S. 10% sales tax on five luxury product categories was repealed, but its damage had been done. The boat business in the U.S. never recovered to its former vitality. Dozens of builders went out of business - Trojan, Uniflite, Jersey Yachts, Pacemaker, Egg Harbor, Blackfin, Phoenix, and many others simply collapsed. The companies that did survive were ones that had a large overseas dealer network. Foreign boat buyers kept American boat builders alive during the luxury tax disaster.

Now the state's new Governor is taking a page from Dan Rostenkowski's playbook (he was the chairman of the House Ways and Means Committee that dreamed up the federal 10% luxury tax). Rostenkowski slapped the luxury tax on a wide-reaching general tax bill which was raising taxes on middle and lower income people and he was anticipating yells of outrage. In order to deflect that criticism, he, and other Democrats running for office that year, reminded everyone that the new tax law was "soaking" the rich with the 10% luxury tax.

Unintended Consequences

Almost nobody pays taxes if they don't have to, and Americans just simply stopped buying new boats over $100k. Instead they bought used boats, or a vacation house, or installed a new infinity pool, or put the money in the bank. What Dan Rostenkowski and the other members of Congress failed to recognize was that people build boats and without boat sales there are no jobs building them, and no taxes received from people and companies making income from them.

Instead of "soaking the rich" the luxury tax simply put working men and women out of jobs. The rich didn't get soaked at all.

While the federal luxury tax hit boats, cars over $30,000, jewelry, furs, and private planes, Malloy's new tax proposal is targeting only cars over $50,000, jewelry over $5,000, clothes over $1,000, and caviar of any price. For some reason he has left out furs and private planes. In any case we have seen this movie before.

Will it Raise Revenues?

How much tax money are we talking about anyway? State Senator L. Scott Frantz says that the state Department of Revenue Services reported recently that in the fiscal year that ended last June 30, retail sales and some yachting services in Connecticut totaled $78.2 million. That includes all new boat sales, not just those of boats over $100,000. If every dollar of that amount was for boats over $100k, Malloy's new boat sales tax would bring in just $2.3 million. That is, of course, if boaters continued buying boats in the state.

Has Gov. Dan Malloy added 3% on luxury items for the same reason as Rostenkowski socked it to boats 21 years ago -- to defect criticism and attention from the fact that he will also be raising taxes on middle and lower income earners as well?

Malloy is saying that there must be "shared sacrifice" to reduce the state's budget deficit. While he is also proposing to raise the tax on the highest incomes, he is also raising state taxes on electricity, gasoline and cigarettes. Clearly, the biggest "sacrifice" will be boat dealers slaughtered in order to "soak the rich," and fool the poor.

If Gov. Malloy's proposal passes the state legislature, say good-by to your friends the boat dealerships.. Venerable names like Bassett, Rex, Rowayton Boatworks, Petzold's, Catalano's and many others will be history. RIP.