Yacht dealers await repeal of luxury tax Levy has squeezed a hurting industry

THE BALTIMORE SUN

Boat dealers in Maryland and across the nation are hoping that Congress will soon throw them a lifeline by repealing a luxury tax on yachts that has crippled an industry already wracked by the recession.

The House is expected to vote this week on a deficit-reduction bill that includes the repeal of the 10 percent luxury tax on boats costing more than $100,000, which together with the recession cost the boating industry billions of dollars in lost sales and tens of thousands of jobs.

There is strong support in both the House and Senate, and among both parties, to end the tax. Capitol Hill staffers expect the tax to be eliminated -- retroactive to Jan. 1, 1993 -- before Congress leaves for its August recess.

An attempt to repeal the measure failed last year as part of the tax bill vetoed by President George Bush. Since this year's measure came from the White House and is being lobbied heavily by President Clinton, a presidential signature is expected.

"We're more optimistic than we've been in this horrible 2 1/2 -year process," said Amy Halsted of Annapolis, a member of the Coalition to Save Jobs in Boating, an industry group formed to push for repeal of the tax.

The luxury tax was meant to soak the blue-blazer crowd when it went into effect in 1991. Instead, it slammed into the boating industry with the force of a northeaster, leaving the scattered debris of decreased sales and lost jobs.

Before the tax went into effect, there were 600,000 people employed in the marine industry nationwide. The recession cost 100,000 jobs, and the luxury tax resulted in the loss of another 25,000, the National Marine Manufacturers Association estimates. Boat sales nationally dropped 42 percent during the period, from $17 billion in 1989 to $10 billion in 1992.

While industry officials note that most of that downfall can be blamed on the nagging recession, they say the luxury tax helped make a bad situation worse.

Many businesses failed

Throughout Maryland, as many as 300 of the state's estimated 1,500 marine-related businesses went under, leading to hundreds of layoffs, said David Morrow, president of the Marine Trades Association of Maryland. Mr. Morrow, an insurance agent, has seen his boat-related business drop about 20 percent.

At Midlantic Marine Inc. on Kent Island, sales dropped from $6 million in 1989 to $1 million in 1992, and its work force decreased from 19 to 6. The firm's president, Bob Hummel, says he hasn't sold a new boat priced at over $100,000 in two years. Like other dealers, Mr. Hummel has been left selling used and less expensive boats.

$550,000 sale waits

He recalls a recent attempt to sell a $550,000 yacht. The potential buyer of the 52-foot Jefferson Marquessa told him, "As soon as the tax goes away, write the order and I'll send you a check."

When the luxury tax is repealed, another type of boat tax is expected to replace it: a 20.1-cent-per-gallon tax on diesel fuel for pleasure boats beginning Jan. 1, 1994. The proposed new tax, which would not apply to commercial vessels, isn't wildly popular among boaters either. But many in the industry seem to feel it would be more fair than the luxury tax -- and far less damaging to business.

Currently there are no federal excise taxes on diesel fuel used in recreational boating. Under the proposal now before Congress, those boaters would be subject to the same tax as that levied on highway users of diesel.

$40 added cost

The new diesel tax is expected to yield $137 million for the federal treasury over five years -- a figure similar to the revenues originally sought through the luxury tax, but which never materialized. The diesel tax would hit some 15 percent of the estimated 190,000 registered boats in Maryland, according to the Boat Owners Association of the United States, BOAT/US.

Michael Sciulla, vice president of BOAT/US, said that under the diesel tax, the owner of a 35-foot sport fishing boat with a 200-gallon tank would pay an extra $40 before heading out to sea.

"They're sticking it to the recreational boaters," Mr. Sciulla complained. "These people already bought and paid for their boats," he said, adding that he sees the proposed new tax as "a raw deal."

Lagging pace

But some boating industry opponents of the luxury tax say the diesel tax is more just. Wealthy boaters could bypass the luxury tax on new yachts by buying a used one. Since diesel fuel is used for larger boats, those over 25 feet, the proposed tax would still be aimed at yacht owners -- but a much larger group than those hit by the luxury tax.

Officials hope it will be far more successful than was the luxury tax at raising money for the government.

The Internal Revenue Service brought in just $16 million in revenue during the first year and a half of the luxury tax -- far off the pace of the $125 million it was projected to yield over five years, according to the congressional Joint Committee on Taxation.

"Rather than hitting the big guy in the wallet, it's been kicking the little guy in the pants," said Jeff Holland, spokesman for Annapolis Boat Shows, which sponsors powerboat and sailboat shows each fall. Those shows have been much smaller since the luxury tax went into effect.

State tax revenues have also dropped off as a result of lost sales. The 5 percent excise tax on the sale of new and used boats brought in $15 million in 1990, but only $11 million in 1992. Those state funds are used for a variety of boating needs, from safety courses to waterway improvements.

Added boost?

Now that the economy is on the rebound, industry officials say, the repeal of the luxury tax could offer an added boost. The Coalition to Save Jobs in Boating says there was a slight increase in sales of boats under $100,000 in 1992, although no increase in boats above that price.

"[Buyers] will pay almost as much for a used one as they will for a new boat," said Mr. Hummel. "They just won't pay that tax."

Mr. Holland, the Annapolis Boat Shows spokesman, is hopeful that the repeal could come in time for the October shows.

"At this point it would be a real boost," he said. "That would be nothing shy of fabulous."

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