Is a fishing party boat that carries passengers from New York to New Jersey fishing waters and back — without discharging them in another state — an exempt commercial vessel engaged in interstate commerce?

Plain-English summary

Shearwater (Brooklyn, New York) asked whether its motor vessel MV SHEARWATER would be exempt from sales tax on fuel, provisions, supplies, maintenance, and repairs. The plan: carry passengers from Sheepshead Bay, Brooklyn to fishing grounds in New Jersey waters (beyond the New York Harbor Zone), let them fish and keep their catch, and then bring them back.

The answer: not exempt — the boat isn't engaged in interstate commerce.

• § 1115(a)(8) exempts commercial vessels primarily engaged in interstate or foreign commerce, and property purchased for such vessels' fuel, provisions, supplies, maintenance, and repairs.
• 20 NYCRR 528.9 defines the terms: "primarily" means at least 75% of the vessel's receipts come from interstate or foreign commerce; "engaged in interstate or foreign commerce" means transporting persons or property for compensation between states or countries.
• The Department has held that to qualify, a vessel must pick up passengers or property in one state and discharge them in another.
• MV SHEARWATER picks up passengers in New York and returns them to New York — it never discharges them in New Jersey. So it is not engaged in interstate commerce, and all of Shearwater's purchases are subject to New York State and local tax.

What this means for you

A round trip that ends where it started isn't interstate commerce. Crossing into another state's waters isn't enough. For the vessel exemption, the Department looks for passengers or cargo picked up in one state and dropped off in another. A party boat that brings everyone home doesn't meet that test.

The exemption needs 75% interstate receipts. Even a vessel that does some qualifying interstate trips must derive at least 75% of its receipts from interstate or foreign commerce to be "primarily" engaged in it.

Fishing party boats generally pay tax on fuel and supplies. Because the typical trip is out-and-back from the same state, these operators usually can't claim the § 1115(a)(8) exemption on their fuel, provisions, supplies, and repairs. (Contrast a vessel that genuinely moves passengers or goods between states — for example, cargo barges the Department has treated as exempt when 75%+ of their work is interstate.)

Common questions

Q: We sail into another state's waters — isn't that interstate commerce?
A: Not by itself. The Department requires picking up passengers in one state and discharging them in another. A trip that returns passengers to the state they left isn't interstate commerce for this exemption.

Q: What does "primarily" engaged mean?
A: Under 20 NYCRR 528.9, at least 75% of the vessel's receipts must come from interstate or foreign commerce.

Q: So do we owe tax on fuel and supplies?
A: Yes. Because MV SHEARWATER isn't engaged in interstate commerce, all its purchases of fuel, provisions, supplies, maintenance, and repairs are subject to New York State and local sales tax.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1115(a)(8) — exempts commercial vessels primarily engaged in interstate or foreign commerce, and property for their fuel, provisions, supplies, maintenance, and repairs
• 20 NYCRR 528.9 — defines "commercial vessel," "primarily" (at least 75% of receipts from interstate/foreign commerce), and "engaged in interstate or foreign commerce" (transporting persons or property for compensation between states or countries)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_177s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80(177)S
Sales Tax
September 30, 1980

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800612A

On June 12, 1980 a Petition for Advisory Opinion was received from
Shearwater, 3030 Avenue #4A, Brooklyn, New York 11235.
The issue raised is whether or not Shearwater will be exempt from the sales
tax upon property for the use of its vessel, MV SHEARWATER, for fuel, provisions,
supplies, maintenance and repairs.
The MV SHEARWATER is enrolled and licensed by the United States Coast Guard
to carry on the "Coasting Trade, Cod and Mackerel Fisheries," under Title L of
the Revised Statutes of the United States, "Regulation of Vessels in Domestic
Commerce."
Petitioner is contemplating engaging its motor vessel MV SHEARWATER in the
business of transporting passengers, from Sheepshead Bay, Brooklyn, New York, to
fishing grounds located in the waters of the State of New Jersey and beyond the
limits of the New York Harbor Zone. While there, the passengers would engage in
fishing, with any catch theirs to keep.
Section 1115(a)(8) of the Tax Law exempts "Commercial vessels primarily
engaged in interstate or foreign commerce and property used by or purchased for
the use of such vessels for fuel, provisions, supplies, maintenance and repairs
(other than articles purchased for the original equipping of a new ship)."
Regulation 20 NYCRR 528.9 states in part, "Commercial Vessels...(4)
Primarily means that at least seventy-five percent of the receipts from the
vessel's activities are derived from interstate or foreign commerce.
(5) Engaged in interstate or foreign commerce. Engaged in interstate or
foreign commerce means the transportation of persons or property for compensation
between states or countries...."
To qualify as interstate or foreign commerce this department has held that
a vessel must pick up property or passengers in one state or country and
discharge them in another.
Since the vessel MV SHEARWATER will pick up passengers in New York State
and transport them to fishing waters of the State of New Jersey and return
without discharging the passengers in another state the vessel is not engaged in
interstate or foreign commerce.
Accordingly, all purchases made by Shearwater will be subject to New York
State and local tax.

Dated: September 2, 1980

s/GABRIEL B. DiCERBO
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR