Current through Register Vol. 41, No. 3, September 23, 2024
A. Generally.
The Watercraft Sales and Use Tax is imposed at the rate of 2.0% upon the sale
of every watercraft sold in Virginia that is required to be titled with the
Department of Game and Inland Fisheries and upon the use in Virginia of any
watercraft that is required to be titled with the Department of Game and Inland
Fisheries.
1. There is a $2,000 maximum tax
limitation on the amount of Watercraft Sales and Use Tax that may be levied on
the sales price of watercraft sold in Virginia, on the sales price of
watercraft sold elsewhere but required to be titled in Virginia, and on the
market value of watercraft first required to be titled in Virginia six months
or more after its acquisition. This maximum tax limitation does not apply to
leases, charters or other uses of watercraft subject to the Watercraft Sales
and Use Tax.
2. If the watercraft
is not sold in Virginia and is first required to be titled in Virginia six
months or more after its acquisition, the tax is imposed at 2.0% of the current
market value of the watercraft if such current market value is less than the
sales price of the watercraft including the cost of any modifications,
improvements or additions subsequent to initial acquisition.
B. Boat motors generally. The tax
applies to all boat motors that will be placed on a watercraft as defined in
23VAC10-230-30.
1. Dealers who are in the regular business of
selling watercraft, and who have agreed with the department to collect and
remit watercraft tax on behalf of their customers, shall collect and remit the
tax on motors sold that will be placed on watercraft.
2. If a dealer has not agreed with the
department to collect and remit watercraft tax, the dealer must charge the
retail sales and use tax. the department will subsequently refund the
difference (between the retail sales and use tax and watercraft tax) directly
to the customer upon application by the customer to the department.
3. See
23VAC10-230-75 and
23VAC10-230-90 C for more
information on dealers.
C. The following list contains scenarios that
are not considered sales for the purposes of the Watercraft Sales and Use Tax
and are therefore not taxable transactions:
1.
Any transfer of ownership or possession where the transfer is made to secure
payment of an obligation.
2. Any
transfer of ownership or possession that is incidental to repossession under a
lien and under which ownership is transferred to the repossessor, his nominee
or a trustee pending ultimate disposition or sale of the collateral.
3. Any transfer of ownership or possession
that is part of the sale of all or substantially all the assets of any
business. The exemption applies only to watercraft upon which Virginia
Watercraft Sales and Use Tax or Virginia Retail Sales and Use Tax has been paid
by the transferor and does not include nontitled watercraft held for resale by
a dealer or manufacturer or any other watercraft held or used for exempt
purposes by the transferor. The tax status of such watercraft will be
determined by the transferee's purposes and use of the watercraft. For purposes
of this exclusion, the term "substantially all the assets" shall mean "80% or
more."
4. Any transfer of ownership
or possession by survivorship, inheritance or gift.
5. Any transfer of ownership or possession
from an individual or partnership to a corporation or from a corporation to an
individual or partnership if the transfer is incidental to the formation,
organization, reorganization, or dissolution of a corporation where the
individual or partnership holds the controlling interest. For purposes of this
exclusion, a controlling interest means the ownership of at least 80% of all
outstanding shares of voting stock.
Example 1. Corporation ABC transfers ownership of its
watercraft to Partnership JKL, where the transfer is incidental to the
dissolution of Corporation ABC and Partnership JKL owns 85% of the voting stock
of Corporation ABC. The transfer is not considered a sale for the purposes of
the Watercraft Sales and Use Tax.
Example 2. Same facts as example 1, except that Partnership
JKL owns 50% of the voting stock of Corporation ABC. The transfer is considered
a sale for the purposes of the Watercraft Sales and Use Tax.
6. Any transfer of ownership from a partner
to the partnership in which he is a partner will be deemed a taxable sale only
in part. The part taxable is the gained aggregate interest of the partnership.
Similarly, any transfer of ownership from a partnership to a partner will be
deemed a taxable sale only on the gained aggregate interest of the partner.
Example. Partner T owned a watercraft that he
has transferred to Partnership RST. Partnership RST has two partners in
addition to Partner T, where all partners are equal shareholders possessing 1/3
of the partnership. The gained aggregate interest of Partnership RST is 2/3,
while as a member of Partnership RST, Partner T is maintaining possession of
1/3. The tax must be paid on 2/3 the current market value or the purchase price
of the watercraft, whichever is lower.
7. Any transfer of ownership or possession
between affiliated entities if Virginia Watercraft Sales and Use Tax or
Virginia Retail Sales and Use Tax was paid on the acquisition or use of the
transferred watercraft by the transferring entity. For purposes of this
exclusion, two or more entities shall be deemed to be affiliated if (i) one
entity owns at least 80% of the outstanding shares of voting stock (or
equivalent ownership interests) of the other or others or (ii) at least 80% of
the outstanding shares of voting stock (or equivalent ownership interests) of
two or more entities is owned by the same interests. For purposes of this
exclusion, entity means a business organization, other than a sole
proprietorship, that is a corporation, limited liability company, or
partnership, including general partnership, limited partnership, or limited
liability partnership, duly organized under the laws of the Commonwealth or
another state.
Example 1. Corporation A purchased a watercraft in Virginia
and paid Virginia Watercraft Sales and Use Tax on the purchase. The following
year, Corporation A acquired all of the capital stock of Corporation B and
transferred its watercraft to Corporation B. The transfer would not be subject
to Virginia Watercraft Sales and Use Tax because it would represent a transfer
between qualified affiliates (parent owning at least 80% of subsidiary) and
because the tax was paid on the acquisition of the transferred watercraft by
the transferring corporation.
Example 2. Individual A owns 100% of the voting stock of
Corporation E and 85% of the voting stock of Corporation F. Both corporations
operate businesses within Virginia. In 1982, Corporation E transfers to
Corporation F a watercraft that it had previously purchased and on which it had
paid Virginia Watercraft Sales and Use Tax. The transfer would not be subject
to Virginia Watercraft Sales and Use Tax because it would represent a transfer
between qualified affiliates (at least 80% of the voting stock of each
corporation is owned by the same owner) and because Watercraft Sales and Use
Tax was paid on the acquisition of the transferred watercraft by the
transferring corporation.
D. Each transaction taxable. The same
transaction will not be subject to the tax more than once. However, each time a
sale or transfer takes place, or a watercraft is brought into use in Virginia
and required to be titled, the new owner or new user in Virginia will be
subject to the tax and will be required to title the watercraft with the
Department of Game and Inland Fisheries.
E. Watercraft not sold in Virginia; use tax.
When the watercraft is not sold in Virginia but is required to be titled for
use in Virginia, the use tax applies. Any watercraft purchased without this
state and subsequently required to be titled in Virginia, is subject to the
2.0% use tax based on the sales price, or the current market value of the
watercraft if purchased six or more months before being required to be titled
in Virginia and if such value is less than the sales price, including the cost
of any modifications, improvements or additions subsequent to initial
acquisition.
F. See
23VAC10-230-90 for information
concerning payment of tax.
