United States: Purchase of Boat Documented Through Coast Guard Held Taxable in Ohio

In Lipinsky v. Zaino, Docket No. 2003-G-923 (May 7, 2004), CCH ¶ 403-285, the Ohio Board of Tax Appeals held that the purchaser of a motor yacht that was documented through the U.S. Coast Guard was subject to Ohio use tax because the boat was purchased in Ohio and was docked in Ohio. The fact that the boat was not required to be titled in Ohio did not prevent the transaction from being taxed.

The taxpayer was a purchaser of a boat that was documented through the U.S. Coast. The boat was purchased in Ohio and docked in Ohio but was not titled in Ohio. The Tax Commissioner assessed a use tax against the taxpayer on the purchase of the boat. The taxpayer subsequently filed a petition for reassessment on the use tax, claiming that he is not the proper person to be assessed in this transaction and that no tax was due because the boat was documented through the U.S. Coast Guard.

The Commissioner issued a final determination, denying the taxpayer’s claims and affirming the assessment of Ohio use tax on the purchase of the boat. The Commissioner found that other than the bill of sale from the previous owner and the Coast Guard documentation of the boat, the taxpayer did not offer any additional explanation or documentation of his claims. Based on the records available which indicated that the taxpayer is the proper person to be assessed, the Commissioner denied the taxpayer’s objection and held that the use tax was properly assessed under R.C. 5741.02(A).¹

As to the taxpayer’s objection that no tax was due because the boat was documented through the Coast Guard, the Commissioner denied it under R.C. 5741.02(B) which requires each consumer who acquires tangible personal property for storage, use or consumption in Ohio to pay the use tax on such acquisition. Therefore, a sale of boat, even though documented with the U.S. Coast Guard, is not exempt from use tax. In addition, the fact that the boat is not required to be titled in Ohio does not negate the fact that the boat was brought in and used in Ohio, the Commissioner held.

The taxpayer appealed to the Board of Tax Appeals ("Board") on the following grounds: (i) that the taxpayer is not the proper person to be assessed on the purchase of the boat, since he had submitted evidence to show that he paid the full purchase price, which included any use tax to be remitted to the State of Ohio; (ii) that, under R.C. 5741.12(c), no use tax was due because the boat was documented through the U.S. Coast Guard and was not evidenced by a Certificate of Title; and (iii) that the seller of the boat was, under R.C. 5741.04, authorized and licensed to collect the tax from the taxpayer, and the taxpayer had in fact paid the seller the tax.

The Board affirmed the Commissioner’s final determination. First, the Board noted that the findings of the Commissioner are presumptively valid. Alcan Aluminum Corp. v. Limbach, 42 Ohio St.3d 121 (1989). In addition, the taxpayer has the affirmative duty to come forward and prove that the Commissioner’s findings are unreasonable, unlawful, or erroneous. Manfredi Motor Transit Co. v. Limbach, BTA No. 1987- F-279 (Aug. 17, 1990). Where the taxpayer failed to show by competent and probative evidence that the Commissioner’s findings are incorrect, the Board must affirm the Commissioner’s findings. Hatchadorian v. Lindley, 21 Ohio St.3d 66 (1986); Averill v. Limbach, BTA No. 1990-C- 1647 (Aug. 23, 1991).

In determining the taxpayer’s claims, the Board also looked to the purposes of the use tax: (i) to protect the revenues of the state by taking away the advantages of making purchases outside the reach of the state’s sales tax; and (ii) to protect local merchants against competition of out-of-state stores not required to charge instate sales taxes. Cooey-Bentz Co. v. Lindley, 66 Ohio St.2d 54 (1981).

The Board then went on to deny the taxpayer’s contentions. With regard to taxpayer’s contention that he is not liable for the use tax because the boat was documented through the U.S. Coast Guard, the Board disagreed. The Board stated that according to R.C. 5739.02, a casual sale of a watercraft documented with the U.S. Coast Guard is not exempt from sales tax. Moreover, the bill of sale evidenced that the taxpayer is the proper person to be assessed and did not reflect that any sales tax was paid to the seller. The Board held that, since the boat was purchased in Ohio and was docked in Ohio, the taxpayer was required to pay use tax notwithstanding the coast guard documentation.

In addition, the Board noted that its present ruling is consistent with Schwind v. Zaino, BTA No. 2002-N-807 (Jan. 17, 2003), wherein the Commissioner’s assessment of use tax on a boat that was "federally documented" and used in Ohio was affirmed. The Board in the present case concluded that since the taxpayer had failed its burden of providing any competent, probative evidence that the Commissioner’s final determination was erroneous, the Commissioner’s final determination must be affirmed.