Did Florida use tax apply to a foreign-owned, foreign-flagged pleasure yacht operating in Florida under a federal cruising license?

Plain-English summary

A foreign corporation owned a foreign-flagged pleasure vessel purchased outside U.S. territorial waters. The yacht would use a Florida slip and could be used frequently by a related Florida resident and nonpaying guests, but it would operate under a federal cruising license and would not be chartered or used commercially.

Florida ruled that the valid cruising license prevented the vessel from being treated as permanently imported or commingled with the state's general property. Neither the vessel nor the described owners and user incurred Florida use tax while it operated consistently with the license.

The protection was conditional. Offering the yacht for sale or charter in the United States, or otherwise using it inconsistently with the pleasure-yacht cruising rules, could allow Florida to treat it as commingled and impose use tax. The Department also conditioned its corporate-separateness conclusion on the foreign company funding the purchase, appropriate insurance and use facts, and the Florida user not managing or owning the company.

What this means for you

A federal cruising license can control the state-use-tax result for a qualifying foreign pleasure yacht, but actual operations and ownership arrangements must remain consistent with the license and stated facts.

Common questions

Did a one-year Florida slip lease by itself trigger use tax? No, under the full set of stated facts.

Could nonpaying guests use the yacht? Yes, as described, while the vessel remained noncommercial and compliant.

What conduct could change the result? Offering the vessel for sale or charter or otherwise violating the federal cruising-license conditions.

Citations and references

• Fla. Stat. § 212.06(1), (8), Fla. Admin. Code r. 12A-1.007, and 19 C.F.R. § 4.94(b), as discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-025

Original ruling text

SUMMARY
QUESTION: Is a Foreign Flagged vessel, used in Florida, under a cruising license issued
pursuant to 19 CFR 4.94(b), subject the vessel the vessel owners to Florida’s Use tax.
ANSWER: If a vessel purchased by a foreign corporate entity uses the vessel in Florida waters,
or allows the use of the vessel in Florida waters, while under a valid license to cruise, issued
pursuant to 19 CFR 4.94(b), Florida will not impose its use tax against the vessel or the vessels
owner.
May 20, 2009
XXX
Re:

Technical Assistance Advisement 09A-025
Sales and Use Tax – Use of a Foreign Flagged Vessel in Florida
Section: 212.06, Florida Statutes (F.S.)

Dear XXX:
This letter is in response to your correspondence to the Department, dated XXX, requesting the
Department’s issuance of a Technical Assistance Advisement (TAA) pursuant to Section 213.22,
F.S., and Chapter 12-11, Florida Administrative Code, (F.A.C.), regarding the use of a foreignflagged vessel in Florida. An examination of your letter established that you complied with the
statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is
hereby granting your request for issuance of a TAA.
ISSUE
Whether the use of a XXX XXX XXX flagged vessel in Florida, under a cruising license issued
pursuant to the Code of Federal Regulations, 19 CFR 4.94(b), will subject the vessel or the
vessel’s owners to Florida’s use tax.
FACTS
Your letter presents the facts, in part, as:
XXX a XXX XXX XXX company (“XXX”), has purchased a XXX motor vessel (the
“Vessel”). The Vessel carries the flag of the XXX XXX XXX. . . .
XXX is owned solely by XXX, a citizen and resident of XXX. XXX is not a United
States resident and has no plans of becoming a United States resident. The sole officer
and director of XXX is XXX. XXX has a XXX, XXX, who is a Florida resident and
who will be using the Vessel from time to time. The Vessel has a captain who generally
will be on board the Vessel frequently even when the Vessel is not at sea. When XXX

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purchased the Vessel, the Vessel was not located in the United States territorial waters.
XXX has obtained a cruising license pursuant to the Code of Federal Regulations, 19

CFR 4.94(b) (a “Cruising Permit”), pursuant to which the Vessel will be able to arrive
and depart from the United States for a stated period not to exceed one year, and to cruise
in specified waters of the United States without entering and clearing, without filing
manifests and obtaining or delivering permits to proceed, and without the payment of
entrance and clearance fees or certain other obligations. XXX may obtain additional
Cruising Permits to cruise in United States, including Florida, waters after the first year.
We ask that you assume that XXX intends to obtain and will have obtained more than
one such Cruising Permit for the Vessel after the first one expires.
XXX has arranged for a boat slip in Florida where the Vessel can be birthed during the
period it is in Florida waters. The lease for the slip is for a one-year term. The slip was
leased initially in XXX name but it either has since been placed in XXX’s name or such
an assignment (or amendment) is in process. As indicated, XXX, in his capacity as
owner and director of XXX, has authorized XXX to allow XXX to use the Vessel from
time to time, including in Florida waters, which use should be assumed to be frequent for
purposes of the advisement sought herein.
While the Vessel has a Cruising Permit, it will not be used for any “commercial
purposes” (as that term is interpreted for United States Customs’ purposes), will not be
chartered to others, it will carry no passengers other than XXX, his XXX and other nonpaying guests of XXX and XXX.
REQUESTED ADVISEMENT AND TAXPAYER’S POSITION
You request the following advisement:
Both XXX and XXX request that the Department of Revenue issue a Technical
Assistance Advisement stating that none of XXX, XXX and XXX will be subject to
Florida sales or use tax in respect to the purchase price or fair market value of the Vessel
so long as the Vessel has a Cruising Permit issued pursuant to 19 CFR 4.94(b) while the
vessel is in Florida waters and so long as XXX is in compliance with the U.S. Customs’
requirements for a Cruising Permit. We also request that such [advisement] confirm that
the Cruising Permit protects concerns that XXX could be viewed as participating in the
management, direction or control of XXX’s affairs.
You assert the following position with respect to the imposition of Florida sales and use tax on
the use of the Vessel in Florida:
The undersigned, an authorized representative of XXX and XXX stipulates that, but for
the fact that the Vessel will have a Cruising Permit issued pursuant to19 CFR 4.94(b),
XXX would be subject to Florida use tax imposed by Section [212.06], Fla. Stat., if the

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Vessel remained in Florida waters for an uninterrupted presence of longer than [183]
days. See Section 212.06, Fla. Stat. Because the Vessel was purchased and delivered

outside the territorial waters of the [State of Florida], Section 212.05(1) [F.S.] is not
applicable even though XXX is a Florida resident and will be utilizing the [Vessel].
Because of the XXX relationship between XXX, and the fact that XXX has been
authorized to use the [Vessel] as often as XXX desires, one issue is whether XXX could
be viewed as a person who has powers to participate in the management, direction or
control of XXX’s affairs. Even if this is assumed to be the case, it should not be an issue
for concern for Florida sales or use tax purposes as long as the Vessel and XXX are in
compliance with the conditions of the Cruising Permit.
The Department’s website under the heading “Sales and Use Tax on Boats, Information
for Owners and Purchaser[s],” provides a special rule for “Foreign [Flagged] Vessels”
which applies to the Vessel because it flies the flag of the XXX XXX XXX. That
discussion states that “[b]oats flying a foreign flag as exempt from Florida use tax if they
have a current license to cruise issued by the U.S. Customs Service. Licenses to cruise
are available only to boats flagged in countries that have a treaty with the United States.
The boat will remain exempt as long as the provisions of the license to cruise are not
violated.”
Consequently, XXX and XXX request that the Department of Revenue issue an
advisement that no Florida use tax will be imposed upon either XXX, XXX or XXX, so
long as the Vessel has a cruising permit and XXX is in compliance with the terms of 19
CFR 4.94(b) as interpreted by the U.S. Customs Service. The advisement should confirm
that neither (i) the fact that XXX initially entered into a contract for a boat slip for a
period of one year where XXX’s vessel will be moored, not (ii) because non-paying
guests use the Vessel, nor (iii) the fact that pays expenses associated with his personal use
of the Vessel such as fuel consumed, food and beverage and temporary dockage or
mooring expenses, do not adversely affect the Florida sales and use tax conclusion.
APPLICABLE STATUTE AND RULE
Paragraph 212.06 (1)(a), F.S. provides, in relevant part:
The aforesaid tax at the rate of . . . 6 percent of the cost price as of the moment of
commingling with the general mass of property in this state . . . shall be collectible from
all dealers as herein defined on the . . . the use, the consumption, . . . and the storage for
use or consumption in this state of tangible personal property . . . taxable under this
chapter. . . .
Rule 12A-1.007, F.A.C., provides, in part:

(2) Purchases Outside Florida.

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(a) There shall be a presumption that any . . . boat . . . purchased in another state, territory
of the United States, or the District of Columbia but titled, registered, or licensed in this
state is taxable except as otherwise provided in subsection (26) of this rule. This
presumption may be rebutted only by documentary evidence that the person owning the .
. . boat . . . purchased the . . . boat . . . in another state, territory of the United States, or
the District of Columbia six (6) months or more prior to the time it is brought into this
state. In order for such property to be presumed exempt as purchased for use outside
Florida, the person owning the . . . boat . . . must provide documentary proof that such
property was used in other states, territories of the United States, or the District of
Columbia for six months or longer under conditions which would lawfully give rise to the
taxing jurisdiction of another state, territory, or District of Columbia and any lawfully
imposed tax was paid to such state, territory, or District of Columbia before being
imported into this state. . . .
(b) Tax shall apply and be due on any . . . boat . . . imported or caused to be imported
from a foreign country into this state for use, consumption, distribution, or storage to be
used or consumed in this state. It is immaterial whether such . . . boat . . . was used in
another country for a period of six months or more prior to the time it is brought into
Florida. Furthermore, tax paid in another country will not be recognized by the State of
Florida in arriving at the tax due.

(9) Boats.

(b)1.a. A boat, purchased by its current owner outside this state, using the waters of this
state and required to be registered and numbered in this state within [30] days after
purchase by the owner, pursuant to Section [328.46], F.S., is subject to tax on the sales
price of the boat within 20 days after purchase by the owner.
b. A boat, purchased by its current owner outside this state, operating on the waters of
this state in excess of 90 days, which is solely documented under operative federal law,
or which is registered, licensed, or titled pursuant to a federally approved numbering
system of another state as described in Section [328.58], F.S., is subject to tax on the
sales price of the boat at the time the requirements of Section [328.58], F.S., have been
met.

2. Effective September 1, 1992, any boat which remains in this state for more than an
   aggregate of 183 days in any 1-year period shall be presumed to be commingled with the
   general mass of property of this state, and tax shall be due on the sales price of the boat,
   except under the following circumstances:

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a. A boat used in other states or territories of the United States, or the District of
Columbia for six months or longer under conditions which lawfully give rise to the taxing
jurisdiction of another state, territory, or District of Columbia and any lawfully imposed
tax was paid to such state, territory, or District of Columbia before being imported into
Florida; or
b. A boat which is physically in the care, custody, and control of a facility registered with
the Department for the purpose of repairs, alterations, refitting, or modifications, and
such activities have been properly documented in accordance with Rule 12A-1.0071,
F.A.C.

DISCUSSION
Paragraph 212.06 (1)(a), F.S. provides “[t]he aforesaid tax at the rate of . . . 6 percent of the cost
price as of the moment of commingling with the general mass of property in this state . . . .”
Florida’s use tax is “ . . . due on tangible personal property imported or caused to be imported
into this state for use, consumption, distribution, or storage to be used or consumed in this state .
. .”; see, s. 212.06(8)(a), F.S.
The term “importation” has been held to mean the bringing of goods within the jurisdictional
limits of the United States with intent to unlade. American Customs Brokerage Co., Inc. v. U.S.,
375 F.Supp. 1360, 1366 (U.S. Customs Court 1974). A vessel is imported if brought into the
United States permanently. Id. The question as to whether a boat is brought into the United
States permanently must be determined on the basis of intent. Id. This intent could be shown by
proving an intent to document the boat under the laws of the United States or of selling or
chartering the boat to a United States resident. Id. at p. 1367.
The court in American Customs Brokerage Co., supra, noted that the issuance of a cruising
permit to a foreign flag vessel would “apparently” indicate a finding by federal customs
authorities that the boat was not brought into the country “permanently.” Thus, the effect of
issuance of a federal cruising license would be to pre-empt the state’s legitimate power to
determine that a given vessel is “commingled.” However, the state might legitimately find that
commingling has occurred if such a boat is listed for sale or charter. 19 C.F.R. §4.94 authorizes
foreign flag vessels from 25 specified nations, including Great Britain and its overseas territory,
the XXX XXX XXX, to be issued cruising licenses for up to one year in U.S. waters. This
precludes a vessel from being considered to be “commingled” or incorporated into the mass of
Florida property. The use tax would not apply. Section 212.06(1), F.S.
Your request that “. . . that such [advisement] confirm that the Cruising Permit protects concerns
that XXX could be viewed as participating in the management, direction or control of XXX’s
affairs,” is akin to asking if a license to cruise will estop the Department from “piercing the
corporate veil.”

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In general, Florida courts have held that, absent outstanding circumstances, the State of Florida
must respect the separate legal identity of a corporation from its owners. See, for example, Dania
Jai-Alai Palace Inc. v. Sykes, 450 So.2d 1114, 1121 (Fla. 1984) (providing that “[t]hose who
utilize the laws of this state in order to do business in the corporate form have every right to rely
on the rules of law which protect them against personal liability.”) Thus, under normal
circumstances, the purchase of the Vessel XXX would not subject XXX to any liability when the
Vessel enters Florida following purchase and delivery.
Therefore, the presence of the vessel in Florida during the periods specified in the License to
Cruise the Waters of the United States will not subject the boat to Florida use tax.
CONCLUSION
Based solely upon the facts as stated in this TAA, because the Vessel is precluded from being
“commingled” or incorporated with the general mass of property of the state of Florida by
operation of federal law, neither XXX, XXX nor XXX will be subject to the imposition of
Florida’s use tax for the use of the Vessel in Florida by XXX, provided the Vessel operates on
Florida waters under a license to cruise pursuant to 19 CFR §4.94(b). If, however, the vessel is
used inconsistent with the provisions of 19 CFR §4.94(b) pertaining to pleasure yachts and their
license to cruise U. S. waters, (for example, the yacht being offered for sale or charter within the
United States) the state of Florida may deem the yacht “commingled” or incorporated with the
general mass of property of the state, and assert use tax at that time.
With your request, you did not furnish copies of the articles of incorporation or a list of the
stockholders, officers, or directors for XXX, nor did you furnish any of the documents relating
the purchase of the Vessel by XXX. However, assuming that:
1) XXX purchased the Vessel from its own funds, and not solely from the personal funds of
XXX;
2) the Yacht’s insurance policy does not prohibit sailing to foreign ports;
3) XXX does not make use of the Vessel 100% of the Vessel’s life; and,
4) XXX is not a stockholder, officer, or director of XXX or manage the day to day
operations of XXX,
the Department would not seek to declare XXX a person who has powers to participate in the
management, direction or control of XXX’s affairs
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is
binding on the Department only under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or administrative
rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based,
may subject similar future transactions to a different treatment than expressed in this response.

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You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of s. 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort
to protect confidentiality, we request you provide the undersigned with an edited copy of your
request for Technical Assistance Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
Sincerely,

James C. “Jimmy” Kalfas, CPA
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 922-4845
Record ID# 58447