Is buying a commercial charter vessel subject to NY sales/use tax if it's in NY under six months a year, or if its hailing port reads 'New York, NY'?

Plain-English summary

The petitioner was considering buying a Coast Guard-certified passenger charter vessel (up to 149 passengers) that would run between the U.S. East Coast and the Caribbean -- in New York City roughly May through mid-October, then chartering in the Caribbean November through April -- and asked whether the purchase is taxable if (1) the vessel is in New York under six months a year, or (2) its hailing port reads "New York, NY."

The Office of Counsel concluded:

• Exempt if primarily in interstate/foreign commerce. Commercial vessels primarily engaged in interstate or foreign commerce are exempt from sales and use tax (Tax Law 1115(a)(8), 1118(3)). A "commercial vessel" is one used primarily to transport persons or property for hire (Tax Law 1101(b)(16)). "Primarily engaged" means 50% or more of the receipts from the vessel's activities come from interstate/foreign commerce (20 NYCRR 528.9(a)(4)-(5)).
• Intent at purchase decides it. Whether the buyer qualifies turns on its intent at the time of sale -- if it intends that 50%+ of receipts will come from interstate/foreign commerce, it may buy the vessel tax-exempt (D.J.H. Construction v. Chu). Later activity can be evidence of that intent.
• Time in New York is NOT determinative. How long the vessel is present in or absent from the State does not decide whether it meets the 50% test.
• Hailing port is NOT determinative. "New York, NY" on the stern is a Coast Guard labeling requirement; it's at most some evidence of location and does not control taxability or exemption.
• If it doesn't qualify, it's taxable. Sales tax applies if delivered in New York; use tax applies if delivered outside but used in New York (measured by the consideration paid, Tax Law 1111(b)(1)). The rate is the combined State and local rate where the vessel is docked or primarily used; brief/occasional use in another local jurisdiction isn't taxed there (Xerox). Use outside New York for more than six months before first New York use can lower the use-tax base to market value at first New York use (1111(b)(2)), and tax properly paid to another reciprocal state is credited (1118(7)(a)).

What this means for you

Charter-boat and marine buyers

The exemption is about how the vessel earns its money, not where it sits. Build records showing that at purchase you intended -- and in fact achieve -- 50%+ of receipts from carrying passengers/property for hire between states or countries.

Don't rely on cosmetic facts

Keeping the boat out of New York "most of the year" or painting a different hailing port won't create or destroy the exemption. The receipts test and your documented intent are what matter.

Common questions

Q: If my boat is in New York less than six months a year, is the purchase tax-free?
A: Not on that basis. Time in New York isn't determinative -- the 50%-of-receipts interstate/foreign-commerce test is.

Q: Does the 'New York, NY' hailing port make the purchase taxable?
A: No. It's a Coast Guard requirement and doesn't control taxability or exemption.

Q: What if I don't hit 50% interstate after all?
A: Then the purchase is taxable -- sales tax if delivered in New York, use tax if delivered out of state and used here -- at the rate where the vessel is docked or primarily used.

Citations and references

• Tax Law section 1115(a)(8) (exemption for commercial vessels in interstate/foreign commerce)
• Tax Law section 1118(3) (use tax exemption for such vessels)
• Tax Law section 1101(b)(16) (definition of commercial vessel)
• Tax Law section 1110(a) (compensating use tax)
• Tax Law section 1111(b) (measure of use tax)
• 20 NYCRR section 528.9 (vessels engaged/primarily engaged in interstate or foreign commerce)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_5s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-14(5)S
Sales Tax
January 29, 2014

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S121010A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
Redacted Redacted Redacted Redacted Redacted, Redacted, Redacted Redacted . Petitioner asks
whether the purchase of a commercial vessel would be subject to New York State and local sales
or use tax if: (1) the vessel is located in New York State for less than six months each year; or (2)
the hailing port displayed on the vessel’s stern reads “New York, NY.”
We conclude that the purchase of the vessel would not be subject to State and local sales
or use taxes if Petitioner’s charter service entails transporting persons or property for hire
between states or countries, and 50 percent or more of Petitioner’s receipts from the vessel’s
activities are derived from this service. We further conclude that the hailing port displayed on
the stern is not determinative of whether purchase of the vessel is subject to tax.
Facts
Petitioner is considering purchasing a commercial vessel that is United States Coast
Guard-certified to carry up to 149 passengers for hire. The vessel would operate between the
East Coast of the United States and the Caribbean each year. The yearly schedule for the vessel
would be to arrive in New York State around May 1st of each year. While in New York State,
the vessel would be docked in New York City. The vessel may depart New York State one or
more times each summer while performing charter service. The vessel would depart New York
State around October 15th of each year. From November through April, the vessel would operate
a charter service in the Caribbean. The hailing port displayed on the vessel’s stern may say
“New York, NY.”
Analysis
Tax Law § 1105(a) imposes sales tax on the receipts from every retail sale of tangible
personal property, unless a specific exemption applies. Tax Law § 1110(a) imposes a
compensating use tax on the use of tangible personal property within the State by a resident,
except to the extent that the property has not or will not be subject to State and local sales taxes,
or unless a specific exemption applies. For purposes of the use tax, a “resident” includes any
“entity doing business in the State or maintaining a place of business in the State.” Petitioner is a
“resident” for use tax purposes, because it has a place of business in the State. Moreover, under
the facts provided, Petitioner’s charter business within the state would be an additional basis of
residency for use tax purposes.

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TSB-A-14(5)S
Sales Tax
January 29, 2014

Commercial vessels primarily engaged in interstate or foreign commerce are exempt
from sales and use taxes. See Tax Law §§ 1115(a)(8), 1118(3). A “commercial vessel” is
defined as a vessel “used primarily (i) to transport persons or property, for hire, (ii) by the
purchaser of the vessel to transport such person’s tangible personal property in the conduct of
such person’s business; or (iii) for both such purposes.” Tax Law § 1101(b)(16). A vessel is
“engaged in interstate or foreign commerce” if it transports persons or property for
compensation between states or countries.” 20 NYCRR § 528.9(a)(5). A vessel is “primarily
engaged in interstate or foreign commerce” if “50 percent or more of the receipts from the
vessel’s activities are derived from interstate or foreign commerce.” 20 NYCRR § 528.9(a)(4)
Petitioner may be engaged in interstate or foreign commerce if its charter service entails
transporting persons or property for hire between states or countries. If 50 percent or more of
Petitioner’s receipts from the vessel’s activities are derived from interstate or foreign commerce,
the purchase of the vessel would be exempt from State and local sales and use taxes. The
amount of time the vessel is present in or absent from the State is not determinative of whether it
meets this requirement.
Petitioner’s entitlement to the exemption will turn on its intent at the time of sale. If
Petitioner intends at the time the vessel is purchased that 50% or more of the receipts from the
vessel’s activities will be derived from interstate or foreign commerce, it may purchase the
vessel exempt from New York State and local sales and use taxes. See Matter of D.J.H.
Construction v. Chu, 145 AD2d 716 (3d Dep’t 1988). Although not determinative, later
activities may be relevant to ascertain Petitioner’s intent at the time of sale.
If the vessel is not intended at the time of purchase to be used primarily in interstate or
foreign commerce, its purchase would be subject to State and local sales or use tax. Sales tax
would apply if the vessel is delivered to Petitioner within the State, and would be calculated on
the receipt from the sale of the vessel. See Tax Law § 1105(a). Use tax would apply if Petitioner
takes delivery of the vessel outside the State and subsequently uses it within the State. The use
tax would be calculated based on the consideration paid or contracted to be paid for the vessel.
See Tax Law § 1111(b)(1). The use tax exemptions provided in Tax Law §§ 1117 and 1214
would not apply because Petitioner would be engaged in a business in which the vessel is used.
The applicable rate of sales or use tax is the combined State and local rate in effect in the
jurisdiction in which the vessel is docked or primarily used. If the vessel is used briefly or
occasionally in another local jurisdiction within the State, it would not be subject to use tax in
that other jurisdiction. See Xerox Corp. v. State Tax Comm’n, 71 AD2d 177 (3d Dep’t 1979).
If Petitioner can prove that it used the vessel outside New York for more than six months
prior to its first use within the State, the use tax will be calculated on the market value of the
vessel at the time of its first use within New York, not to exceed its cost. See Tax Law
§ 1111(b)(2). In addition, Tax Law § 1118(7)(a) provides an exemption from use tax to the
extent that tax on the purchase of the vessel was legally due and paid to another state, without
any right to refund or credit, if that state allows a corresponding exemption for such taxes paid to
New York.

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TSB-A-14(5)S
Sales Tax
January 29, 2014

Finally, Petitioner’s use of “New York, NY” as the hailing port displayed on the vessel’s
stern would not control whether sales or use tax applies to the purchase of the vessel, or whether
the vessel qualifies for exemption. The requirement that a vessel be labeled with a hailing port is
a requirement of the United State Coast Guard, and it may provide some evidence of the vessel’s
location. However, by itself, it is not determinative of whether the vessel is present in the State
or qualifies for exemption from sales and use taxes for commercial vessels.

DATE: January 29, 2014

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE: An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person
or entity to whom it is issued and only if the person or entity fully and accurately
describes all relevant facts. An Advisory Opinion is based on the law, regulations, and
Department policies in effect as of the date the Opinion is issued or for the specific time
period at issue in the Opinion. The information provided in this document does not
cover every situation and is not intended to replace the law or change its meaning.