Boat-builders fight to stay afloat as luxury tax pulls down sales

WASHINGTON — Washington -- Last year, some 220 workers built boats at Pearson Yachts Corp. in Portsmouth, R.I. This year, there are 50 workers left.

On Maryland's Eastern Shore, Harrison Yacht Sales in Graysonville has trimmed its 95 employees to eight.


Those job cuts are among an estimated 19,000 blue-collar marine jobs lost throughout the nation this year. The culprit, boat industry officials say: a 10-percent federal "luxury tax" that went into effect in January on new pleasure boats that cost more than $100,000.

Created to hit the blue-blazer crowd, the tax has instead slammed into the blue-collar worker like a summer squall, zTC according to boatyard owners and officials who track the 450,000-worker industry.


Sales of boats that cost more than $100,000 fell by 56 percent one month after the tax went into effect, according to the National Marine Manufacturers Association. Some boatyard owners, who report no sales this year, have been forced to lay off workers or declare bankruptcy.

That turmoil has sparked a reaction by members of Congress from coastal states such as Louisiana and Maryland, which have lost marine jobs. This week, at a Senate subcommittee hearing, legislators will begin the struggle to repeal the tax that has hurt people like Dave Harrison.

Mr. Harrison, owner of Harrison Yacht, said the small number of workers he has left sell less-expensive boats. "Sales over $100,000 have stopped," said Mr. Harrison, who last year sold $1.8 million in yachts that would have been subject to the new federal tax. "To date, we have yet to collect $1 in luxury tax."

The tax "has really hurt or crippled our production on the Catalina 50," said Sharon Day, national sales manager for Catalina Yachts in Woodland Hills, Calif., referring to the company's 50-foot sailboat that sells for about $270,000.

In 1990, Catalina -- one of the nation's largest boat-builders -- each week produced four Catalina 42's, a company mainstay that sells for just over $100,000. This year, the company makes one each week; some 200 workers have been laid off.

Bill Richardson, director of design and engineering at Pearson, said that the Rhode Island company's large boat division has filed for bankruptcy. The remaining 50 workers produce small sailboats.

Mr. Harrison and others ridiculed attempts by Congress and the Bush administration to collect the luxury tax, which also applies to expensive cars, airplanes, jewels and furs. The

tax was forged last October as part of the five-year deficit reduction plan.


"The fat cat still has his money," Mr. Harrison said. "It's the worker they've just slaughtered."

States also will be indirectly hit by the luxury tax, he noted. Mr. Harrison estimated that $488,000 in excise taxes from boat sales at his yard went into state coffers in 1988, compared with about $15,000 so far this year.

"You don't think the state's hurting a little bit there?" he asked.

Henry Mo, chief of tax assessment for the Maryland Department of Natural Resources, which collects the 5 percent excise tax, noted a sharp drop in the tax since 1988, when the state collected $21 million in boat taxes. In 1989, the state collected $17.9 million. By April of this year, the state had picked up $1.5 million in boat excise taxes for the fiscal year that ends June 30.

Mr. Mo agreed that the federal luxury tax has helped to limit boat excise taxes, which are spent for a variety of boating needs, from boating safety courses to waterway improvements. DNR officials are now trying to figure out how to replace the lost funds, he said.

While opponents of the tax say it will generate little revenue this year -- about $3 million -- Congress expects it to generate far more in the coming years. By 1993, it is expected to pull in $50 million.


In fact, the boating industry may be suffering as much from the recession as from the new tax.

Many industry officials concede the recession has severely hurt boat sales. One example: sales of inboard cruisers dropped to 7,500 last year from 12,300 in 1989.

But they say the luxury tax may sink many businesses that werfoundering. "The recession has hurt the industry, the tax is killing it," said Cheri Jacobs, congressional liaison for the National Marine Manufacturers Association.

"The luxury tax is a final nail in the coffin," added Mick Blackistone, executive director of the Marine Trades Association Maryland. He predicted 50 marine businesses in the state may fold as a result of the tax.

On Wednesday, the Taxation Subcommittee of the Senate Finance Committee will hold a hearing on a bill introduced by Sen. John B. Breaux, D-La., that would rescind the boat tax. Among the nine co-sponsors is Sen. Barbara A. Mikulski, D-Md.

"We thought we were doing the right thing. It was . . . called a luxury tax," said Mr. Breaux, whose state is home to 103 boat-building companies. "No one expected that the impact of that tax would have such a devastating impact on the marine manufacturing industry."


A similar measure has been introduced in the House by Representative E. Clay Shaw, R-Fla. It is co-sponsored by 90 members, including Maryland Representatives Wayne T. Gilchrest, R-Md.-1st, Helen Delich Bentley, R-Md.-2nd, and Tom McMillen, D-Md.-4th.

"The federal government loses, too," said Mr. Shaw, who estimated that some 5,400 boat workers in Florida have lost their jobs, "because those people are no longer paying federal income taxes."

Still, despite the job losses, the move to rescind the measure may face rough sailing.

Under the budget agreement that created the boat tax, if one tax is removed, it must be replaced with another means of generating money.

Representative Benjamin L. Cardin, D-Md.-3rd, a member of the tax-writing House Ways and Means Committee, said that he is against the boat tax. "I personally don't like the tax. It hurts an industry that already is in deep trouble," he said.

But he is uncertain whether he will join the repeal efforts. "I'd love to get rid of it, but you have to pay for it. How do you substitute the revenue?"


Mr. Gilchrest, whose district has been hit by the luxury boat tax, said that colleagues on the Merchant Marine and Fisheries Committee may push for a tax on foreign fish catches within the 200-mile limit as a substitute for the boat tax.

But House Ways and Means Chairman Dan Rostenkowski, D-Ill., has yet to decide whether there will even be hearings on any measure to change the budget agreement.