HARTFORD, Conn. (AP) -- Boat sellers and their customers are getting a break as Connecticut scales back taxes on boat sales that produced little revenue, but lots of complaints from the industry.
Beginning Monday, boats docked in Connecticut for 60 days or less will be exempt from the sales and use tax and a 7 percent luxury tax will be reduced to 6.35 percent, the rate of the state's sales tax, on boats costing more than $100,000.
"It has a huge effect," Dave Pugsley, vice president and general manager at Brewer Yacht Sales, said of the tax. "We're a small industry, but we've been around forever and employ a lot of people."
The recession and weak recovery hurt boat sales and high taxes "would drive people out of the market," he said.
Rep. Patricia Widlitz, the House chairwoman of the legislature's Finance, Revenue and Bonding Committee, said lawmakers two years ago set a 7 percent luxury tax on boats selling for more than $100,000. Boat sellers were telling state officials that in response, buyers were avoiding the tax by negotiating the price to below the $100,000 threshold and bypassing Connecticut for Rhode Island, which does not impose a sales tax on most boats.
Making matters worse for the state, the tax generated only $70,000 in revenue, she said. Widlitz, a Democrat whose district includes the Long Island Sound towns of Branford and Guilford, said she received complaints from boat yards about the tax.
"We were losing business up and down the shoreline," she said. "It was just as easy to go to Rhode Island."
As Connecticut aggressively competes for business with loans, grants and other economic development programs, the boat taxes were making the state "completely uncompetitive," Widlitz said.
The luxury tax still applies to jewelry of more than $5,000, clothing sold for more than $1,000 and luxury cars of more than $50,000, Widlitz said.
Pugsley said the state should anticipate that increased sales due to the tax cut will yield more revenue. Florida capped taxes last year, and he said it helped restore business in the state.
"It's a perfect example of how less taxes creates more revenue," he said.
Employment at boat dealers, boat yards and marinas in Connecticut plummeted 21 percent from 2007, just before the start of the recession, to last year as the recovery continued, according to the state Department of Labor. Jobs in those three parts of the industry fell to 1,898 from 2,405 in the five-year period.
Pugsley said business, particularly in the sale of "brokerage boats," or used boats, has improved as the economic recovery picks up. New boat sales have not rebounded, he said.
"It's still a difficult business right now," he said.
Brewer's operates 14 offices between New York City and Portland, Maine.
Lauren Dunn, spokeswoman at the National Marine Manufacturers Association, said the industry saw the tax cuts in Connecticut as a "major win."
"While the percent lowered doesn't look to be that large, it just brings down another barrier to folks having access to boats," she said.
Retail sales for new power and sail boats were up 10.7 percent in 2012, she said.
Boat owners are not rich, she said. Three-fourths of the estimated 17 million boat owners in the United States have household incomes of less than $100,000, keeping them in middle class or upper middle class.
And Widlitz said the tax cuts were not intended to help millionaires.
"We're not giving a break to yacht owners," she said. "This is economic development."
- Budget, Tax & Economy