The General Assembly has an opportunity this year to give a big boost to Maryland's struggling marine industry while also generating additional tax revenues for the fund responsible for upkeep and improvements to the region's waterways. It's time us to place a cap on the state's boat excise tax.
Over the past few years, Maryland has fallen behind our competitor states up and down the East Coast when it comes to how much of a boat's value should be subject to an excise tax. Neither Delaware nor Rhode Island has a tax. Virginia has long had a cap, limiting boat owners to paying no more than $2,000 in an excise tax, and Florida passed a cap three years ago.
Not surprisingly, Marylanders who own bigger and more expensive boats are increasingly choosing to register them in other states. Even as the nation's boat sales industry has begun to rebound, Maryland is not seeing the increase in registration of larger recreational boats that is being experienced in many other Atlantic Coast states.
All of us with ties to Maryland's marine culture can tell stories of friends and neighbors who have boats based in other states. Unfortunately, when you're talking about avoiding a boat excise tax of tens of thousands of dollars more than what is required in other states, it makes economic sense. And the Marylanders who can afford to own bigger boats (such as those costing in excess of $200,000) tend to have the financial means to be able to register and maintain their boats elsewhere.
What's the consequence for Maryland? First and foremost, our excise tax policy is hurting jobs and spending here in our state. In the marine industry, the rule of thumb is that a boat owner spends about 10 percent of a boat's value each year on maintenance and other work. For a boat worth $500,000, that's $50,000 of spending at the marinas and boat repair shops in other states, instead of Maryland. And with studies showing that every six boats registered in a state generate the need for one new position in the marine industries, we are talking about a real impact on jobs, too.
Moreover, our state's decision to continue to apply the state excise tax to the entire value of all boats is actually hurting the overall revenues going to the fund that the excise tax is intended to help.
All of the money collected from the boat excise tax goes into Maryland's Waterway Improvement Fund, which then offers matching grant money to local jurisdictions for dredging and other projects aimed at improving rivers, harbors and other waterways.
Money going into that fund has been steadily declining, a reflection of a declining number of new boat registrations in Maryland. That decline wasn't so surprising at the depths of our national recession, when boat sales were off nationally. But as boat sales and registrations have begun picking up over the past two years, we aren't seeing a similar rebound here in Maryland, at least among boat sales and new boat registrations.
In 2011, Maryland ranked 26th nationally among the overall total value of boat sales. Do we really think that the home of the Chesapeake Bay should be ranked in the bottom half of boat sales in this country?
I believe the solution can be found in legislation proposed by Sen. John Astle and Del. Ron George that would cap the boat excise tax at the first $200,000 of value of a boat. The cap would ensure that owners of expensive boats would still pay $10,000 into the Waterway Improvement Fund but would eliminate the huge financial penalty that drives owners of expensive boats to register them elsewhere and bars them from staying in Maryland waters for more than 90 consecutive days.
After Florida approved its boat sales excise tax cap in 2010, an independent study found that more boat sales stayed in state and the average sale price of boats increased.
We fully expect the same in Maryland. And given the most recent boat sales numbers, we would need to merely get an additional 130 or so boats worth $200,000 or more to come home to Maryland to make up for the Waterway Improvement Fund's revenue loss — a number that seems like a very modest target.
For our marinas, boat repair centers and other companies that provide services to boats, this is about more than revenue to the state. This is about jobs and local spending. Let's stop pushing our expensive boats out of state and find a way to keep those dollars here in Maryland.