23 Va. Admin. Code § 10-230-40

Current through Register Vol. 41, No. 4, October 8, 2024

Section 23VAC10-230-40 - Tax levied

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.

23 Va. Admin. Code § 10-230-40

Derived from VR12.3.58-685.41, eff. July 30, 1982; amended, Virginia Register Volume 25, Issue 8, eff. March 8, 2009.

Statutory Authority

§ 58.1-203 of the Code of Virginia.