FL Sales Tax vs DMV - Boat with Outboard Motor

FL Sales Tax vs DMV – Boat with Outboard Motor

As a firm that deals with Florida sales and use tax controversy almost every day of the week, it is not too often that we bump into FL sales and use tax issues that we have not already dealt with. So when we get a call from a taxpayer that has novel issue, we tend to get a little excited.[1] Just such an issue popped up this week that I thought our readers would enjoy learning about. It involves the interaction of tax laws between the Department of Motor Vehicles and the Department of Revenue. First – a little background.

Under the laws governing the Florida Department of Motor Vehicles (DMV), every car/boat/plane must be registered with the DMV. The DMV is therefore the agency tasked with making sure that all registered vehicles (cars, boats, planes) are properly registered with the state and that sales tax and registration fees have been properly paid. For those of you that have always purchased your car/boat/plane through a licensed car/boat/plane dealer in Florida, you probably did not have to deal with the DMV until you paid your registration renewal fee and then it was probably by mail. This is because licensed car/boat/plane dealers are required to collect the sales tax on your purchase, then remit the tax to the FL DOR and the registration to the FL DMV. However, if you have ever purchased a car/boat/plane from an individual or from an out of state dealer, then you would have to register the vehicle with the DMV yourself and the DMV is tasked with collecting the use tax on your vehicle purchase. This is because individual sellers of registered vehicles are not required to collect sales tax or register the vehicle for the purchaser.

So whether you purchase the car/boat/plane from a dealer or an individual, you are required to pay sales tax on the purchase price. Therefore, one would logically conclude that the sales tax due would be the same regardless of whether you purchased the vehicle from a dealer or an individual, right? Until this week – I would have said yes and I would have been wrong. A small quirk in the law surfaced that has the potential to tax the two transactions differently – specifically for boats with an outboard motor separately listed on the sales invoice. The reason is a small quirk in the difference between what is required to be taxed by the law governing DMV versus what is required to be taxed by the law governing Florida Department of Revenue.

When you purchase a boat from a licensed dealer in Florida, then the dealer is required to collect sales tax on the whole purchase price of all the tangible personal property being sold to you. So if you purchase a boat, a motor, a dozen life preservers, a pair of paddles, and other miscellaneous goods that go along with a boat – the licensed dealer is statutorily required to charge sales tax on all these items. The Florida Department of Revenue will audit the boat dealer and make the dealer liable for the sales tax if such amounts are not collected from you at the time of sale. However, the DMV has a slightly more limited scope of what they are required or, in this case, allowed to tax.

So if you purchase a boat from an individual – along with their life jackets, paddles, outboard motor, etc – the seller is not required to collect sales tax from you on any of it. You, as the buyer, are required to take the bill of sale down to the DMV office and pay sales tax directly to the DMV. However, the DMV is only required to collect sales tax on the vehicle that is required to be registered. Any separately itemized goods reflected on the bill of sale that is not "the boat" is outside the scope of what the DMV is required or even allowed to tax. So you, as the buyer, will only pay sales tax on the boat itself to the DMV. So, for example, if your bill of sale reflects $250,000, but $75,000 is separately itemize for the two 250 horsepower outboard engines on the boat – then the DMV is not going to charge you sales tax on the outboard engines. This is because the outboard engine is not considered part of the vehicle required to be registered under the laws governing the DMV. The same is not true if the engine is an inboard-outboard or pure inboard, which would be considered part of the boat. It surprised me to note that even the Florida Highway Safety and Motor Vehicles web site provides:

What is included in the price of a vessel and therefore subject to sales tax?

If a dealer[2]makes the sale, then tax is due on the cost of the trailer, motor (outboard and inboard), vessel, and accessories. If a non-dealer makes the sale, then the outboard motor, equipment, devices, and accessories included with the vessel are not subject to tax when the outboard motor, equipment, devices, or accessories are separately itemized and separately priced on the invoice.[3]

So, this would leave you to believe that the sales tax rules apply differently depending on whether you purchase the boat from a dealer or from an individual, right? Well… maybe. Remember, the DMV is only tasked to collect tax on the vehicle. So, to the DMV, all the other itemized goods you purchased are things they are not authorized to collect tax on. Therefore, from the DMV's perspective, all the other itemized goods appear to be not subject to sales tax at all. This is not exactly true. It is just that the DMV is not the governmental entity tasked with collecting the tax on these other items. That is the job of the Florida Department of Revenue.

This brings us to the concept of use tax. If you purchase something on-line and the seller does not collect sales tax from you, believe it or not, you are supposed to remit the sales tax to the state yourself. It is called a USE TAX and it is remitted on a form called a DR-15MO ("MO" stands for mail order). There is a link to a whole article on use tax below if you want to learn more. But the relevance here is that all the non-vehicle itemized items you purchased with the boat are subject to use tax just like your on-line purchases. So, surprise, the quote above from the Florida Highway Safety and Motor Vehicles is wrong. The DMV is only looking at what the DMV is allowed to collect tax on, which is just the vehicle - not everything subject to sales or use tax in Florida.

There is another twist here that keeps this fact pattern interesting, at least from a sales tax professional's point of view. There might be another quirk in Florida sales tax law that would exempt your itemized purchases of goods other than the vehicle itself. There is an exemption under Florida sales tax law for "isolated or occasional sales." These are sales made by someone that is not considered to be a "dealer" for that type of good (sell less than 3 a year). Because you purchased these non-vehicle goods from an individual, there is a rather good chance that seller would not be considered a dealer. Presuming that the seller paid sales tax on this items when they were originally purchased (a requirement for the exemption), the sale of such items to you would be exempt under the isolated or occasional sale exemption. So there is a high likelihood that the purchase of the other used goods with the boat from a non-dealer would, actually, be exempt from sales tax. This exemption would NOT be available if you made the purchase from a Florida licensed boat dealer because, by definition, boat dealer sales of boat related items do not qualify for the isolated or occasional sale exemption.

It is very worthy to note that there is a planning opportunity here as well. If you are purchasing a boat with expensive outboard motors from a non-dealer, then you want to make sure that the outboard motors are separately itemized (with the price) in the bill of sale. If it also worthy to note that you have some flexibility in allocating the price between the boat and the motors. Just remember the old saying – "Pigs get fat. Hogs get slaughtered."

About the author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton's primary practice is Florida tax controversy, with an almost exclusive focus on Florida sales and use tax. Mr. Sutton worked for in the State and Local Tax department of one of the Big Five accounting firms for a number of years and has been an adjunct professor of law at Stetson University College of Law since 2002 teaching State and Local Tax and at Boston University College of Law since 2014 teaching Sales and Use Tax. Mr. Sutton is a frequent speaker on Florida sales and use taxes for the FICPA, Lorman Education, NBI, and the Florida Society of Accountants. Mr. Sutton is also co-author of CCH's Sales and Use Tax Treatise. You can contact Mr. Sutton at 813-775-2131 or JamesSutton@FloridaSalesTax.com or his firm bio.

ADDITIONAL RESOURCES

BOAT CAR PLANE DEALERS: FL SALES TAX FORMS, published June 14, 2013, by Jerry Donnini, Esq.

WHEN SALES TAX AUDITORS MAY NOT PICK AND CHOOSE RECORDS TO USE, published April 19, 2015, by Joseph C Moffa, CPA, Esq.

FL SALES TAX – CASH OR ACCRUAL BASIS, published February 3, 2015, by James Sutton, CPA, Esq.

IS RENT SUBJECT TO FLORIDA SALES TAX, published January 26, 2015, by Jerry Donnini, Esq.

FLORIDA SALES TAX AUDITS OF CAR DEALERS ON THE RISE, published November 14, 2014, by James Sutton, CPA, Esq.

JACKSONVILLE USED CAR DEALER ARRESTED FOR SALES TAX, published December 14, 2014, by James Sutton, CPA, Esq.